sl»*. 


THE  ADMINISTRATION 

OF 

INDUSTEIAL    ENTERPEISES 

WITH  SPECIAL   REFERENCE 
TO  FACTORY  PRACTICE 


BY 

EDWARD   D.   JONES,  Ph.D. 

PROFESSOR  OF  COMMERCE  AND  INDUSTRY  IN  THE  UNIVERSITY  OF  MICHIGAN 

AUTHOR  OF   "economic   CRISES,"    "  THE   BUSINESS   ADMINISTRATOR: 

HIS  MODELS  IN  WAR,   STATECRAFT,    AND    SCIENCE,"   ETC. 


NEW  IMPRESSION 


LONGMANS,    GREEN  AND   CO. 

55      FIFTH      AVENUE,      NEW     YORK 
39    PATERNOSTER    ROW,    LONDON 

BOMBAY,      CALCUTTA,     AND     MADRAS 
1922 


COPYRIGHT,     I916 
Y     LONGMANS,     GREEN     AND     C 


First  Edition.  November.  1916 
Reprinted.  March,  191 7 
October,  19x8  July,  1919 

Reprinted.  Januarj*.  1920 
Aogxiit.  1920;  July,  1932 


MADE   IM   THE   CXnED   STATES 


PREFACE 

The  purpose  of  this  work  is  to  present  what  may  be  called 
first-class  practice  in  the  administration  of  industrial  enter- 
prises. The  manufacturing  industry  is  the  one  which  has 
been  held  in  mind  chiefly. 

The  major  topics,  in  order  of  their  presentation,  are,  first 
the  problem  of  equipment,  second,  the  formation  of  an  admin- 
istrative organization,  third,  the  adjustment  of  the  relations 
of  labor  and  capital  and,  fourth,  the  process  of  mercantile 
distribution. 

In  discussing  physical  equipment  it  has  been  necessary  to 
skirt  the  borders  of  a  vast  field  of  technical  knowledge,  choos- 
ing such  matter  as  the  general  executive  should  possess  in 
his  attempt  to  supervise  the  work  of  technical  experts. 

With  reference  to  administrative  organization,  the  aim  has 
been  to  bring  the  contributions  of  scientific  management  into 
relation  with  the  general  body  of  underlying  principles  of 
administration  which  are  valid  for  all  forms  of  joint  action; 
and  to  do  so  by  sketching  the  evolution  of  administrative 
practice  rather  than  by  a  systematic  review  of  pure  principles. 

The  relations  of  labor  and  capital  have  been  handled  with 
two  leading  purposes  in  mind,  namely,  to  present  the  labor 
problem  from  the  viewpoint  of  the  employing  manager 
and,  second,  to  elaborate  somewhat  the  meaning  of  the  new 
philanthropy  which  aims  to  bring  to  the  less  favored  classes 
a  fuller  measure  of  the  rational  objects  of  fife,  through  the 
organized  and  normal  processes  of  industry,  rather  than 
through  extra-economic  alleviative  agencies. 

The  methods  of  mercantile  distribution  are  presented  in 
outline,  without  entering  upon  a  criticism  of  the  vast  wastes 


vi  PREFACE 

entailed  by  the  modern  evolution,  for  the  reason  that  it  is 
becoming  customan'  to  separate  the  discussion  of  industrial 
organization  from  that  of  commercial  organization,  and  for 
the  further  reason  that  the  Author  hopes  at  a  later  time, 
Deo  Javente,  to  present  a  work  upon  the  American  domestic 
market. 

Throughout  tliis  book  two  things  have  been  held  in  mind; 
to  trace  the  appHcation  of  the  scientific  method  in  industr>-, 
and  to  point  out  the  efficiency  and  the  charm  of  an  economic 
policy  based  upon  welfare  and  service. 

EDWARD   D.   JONES 

Ann  Arbor.  Mich. 
October  2,  1916 


CONTENTS 

CHAPTER  PAGE 

I    The  New  Method  and  the  New  Spirit 1 

II    Launching  an  Industrial  Enterprise 21 

III    Location  of  an  Establishment 37 

IV    Layout  of  a  Manufacturing  Plant 57 

V    Buildings  and  Equipments 75 

VI    Power 106 

VII    Administration 123 

VIII    The  Functions  of  the  Works  Manager 150 

IX    Cost  Accounting 169 

X    The  Employment  of  Labor 188 

XI    Fatigue 212 

XII    The  Measurement  of  Wage  Factors 226 

XIII  The  Older  Wage  Systems:   Day  Wages,  Piece   Rates, 

Profit  Sharing,  and  the  Sliding  Scale      ....  242 

XIV  The    Newer    Wage    Systems:    The    Halsey,    Rowan, 

Taylor,  Gantt,  and  Emerson  Systems 265 

XV    Welfare  Work 291 

XVI    Office  Departments 324 

XVII    Purchasing  and  Stores  Departments 339 

XVIII    Selling 365 

XIX    Advertising 382 

XX    The  Traffic  Department 397 

XXI    Credit  and  Collection 417 

Index 435 


Digitized  by  the  Internet  Archive 

in  2010  with  funding  from 

NCSU  Libraries 


http://www.archive.org/details/administrationofOOjone 


THE  ADMINISTRATION 
OF    INDUSTRIAL  ENTERPRISES 

CHAPTER  I 
THE  NEW  METHOD  AND  THE  NEW  SPIRIT 

The  New  Method 

The  American  evolution.  —  American  industry  is  now  in  a 
transitional  state.  At  first,  for  us  as  a  nation,  economic  growth 
meant  the  mere  spread  of  the  settled  area  westward,  with 
increase  of  population,  and  enlarged  totals  of  production,  and 
the  multiphcation  of  business  units  on  the  same  plane  of  method 
and  purpose.  The  economic  process  presently  became  more 
specifically  the  exploitation  of  crude  resources.  Inventive 
genius  revolutionized  the  mechanism  of  farming  and  lumbering, 
and  made  possible  a  speed  and  scale  of  operations  which  soon 
transformed  the  western  farmsteads  into  something  like  the 
southern  plantations,  —  but  with  machines  as  slaves,  —  and 
developed  the  saw  mills  from  local  custom  shops  into  factories 
producing  standard  articles  for  distant  markets.  The  early  suc- 
cesses with  mechanism  created  such  a  conscious  pride  in  the 
nation's  inventive  genius  that  succeeding  steps  in  industrial 
progress  developed  the  railroad  amazingly  on  its  mechanical 
side,  and  forced  from  infant  to  adult  state  all  that  class  of 
manufacturing  which  depends  chiefly  upon  machinery. 

The  law  of  the  machine  presently  suggested  large-scale 
production,  so  that,  as  the  domestic  market  was  of  enormous 
extent,  the  effort  to  enlarge  profits  soon  became  one  to  extend 

1 


2  ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

selling  campaigns  over  the  entire  countn*.  through  the  evolution 
of  p^e^'iously  unknown  arts  of  pubHcity,  Success  in  this 
achievement  opened  the  way  for  the  consohdations  of  the 
decade  1S95-1905,  and  later,  in  which  the  arts  of  financing 
achieved  a  forced  growth.  As  a  result  of  the  trust  movement, 
there  were  constructed  some  powerful  consohdated  interests, 
and  patched  together  a  number  of  loose  agglomerations  of 
heterogeneous  estabhshments.  which  aU  began  to  look  forward 
hungrily  toward  ultimate  monopoly.  Thwarted  in  this  aim 
by  the  assertion  of  public  wiU.  enterprise  was  next  shunted  in 
the  direction  of  perfecting  legal  mono{X)hes.  under  the  shelter 
of  the  laws  of  patents  and  trade  marks,  the  process  being  to 
differentiate  and  specialize  merchandise,  and  identify'  it  for 
purposes  of  exclusive  control  by  the  use  of  packages,  coined 
nameSj  and  exclusive  "  talking  points."  These  methods  also 
have  now  encountered  the  resistance  of  Federal  law  and  Supreme 
Court  interpretation.  Thus,  in  various  directions,  competitive 
effort  has  been  exploring  the  field  of  possibilities.  In  each 
direction,  after  a  certain  evolution  has  taken  place,  natural 
limitations  have  developed  themselves,  so  that  it  has  been 
necessar>-  to  find  a  direction  of  less  resistance  elsewhere. 

The  factor  of  administration.  —  Now  that  the  careless  use 
of  resources  must  give  place  to  conservation:  and  that  the  prob- 
lem of  mechanism  is  not  simply  to  invent  machines,  but  to  adapt 
them  to  the  laws  of  fatigue:  now  that  the  economies  of  produc- 
tion on  a  large  scale  are  measurably  exhausted :  and  that  indus- 
trial units  have  grown  to  gi'eat  size,  only  to  discover  that  they 
require  an  art  of  administration  comparable  to  the  strategy*  of 
war  or  the  government  of  states,  it  is  becoming  clear  that, 
henceforth,  the  problem  of  industry-  is  no  longer  one  of  simple 
extension,  but  is  the  more  difficult  one  of  refining  the  texture. 
The  administrative  technique  must  be  re\ised  throughout. 
Leaders  and  lieutenants  are  required  who  are  thinkers,  rather 
than  drivem:  -  -  Men  of  investigative  and  scientific  temper 
are  needed  who  can  formulate  pohcies  upK)n  an  enduring  foun- 


THE  NEW  METHOD  AND   THE  NEW  SPIRIT  3 

dation  of  accurate  knowledge.  Representatives  are  wanted 
who  can  justly  conceive  their  relations  to  the  general  interests 
of  society,  and  avoid  punishment  at  the  hands  of  a  public 
opinion  which  has  grown  vigilant.  Alongside  of  the  tradi- 
tional economic  categories,  "  Land,  labor,  and  capital,"  there 
must  be  installed  a  fourth  primary  wealth-producing  factor,  — 
management. 

Present  wasteful  practice.  —  "  Very  few  of  those  who  have 
not  made  special  investigations,"  says  Harrington  Emerson, 
"  realize  how  very  low  the  average  efficiency  of  endeavor  is, 
even  in  a  highly  civilized  country  like  the  United  States.  Every- 
where we  see  brilHant  results;  rarely  can  any  one  follow  the 
losses  between  result  and  initial  supply. 

"  Not  only  are  recurring  wastes  more  flagrant  than  is  gen- 
erally admitted,  but  it  is  also  not  reahzed  that  very  hard  and 
extremely  exhausting  work  is  not  an  evidence  of  efficiency.  It 
is  not  because  men  do  not  work  hard,  but  because  they  are 
poorly  directed  and  work  under  adverse  conditions,  that  their 
efficiency  is  low.  .  .  . 

"  Railroad  repair  shops  throughout  the  country  do  not  show 
50  per  cent  efficiency  on  an  average  as  regards  either  materials 
or  labor. 

''  In  a  big  locomotive  shop,  a  careful  study  of  the  machines 
which  had  been  in  operation  for  twenty  years  showed  that  the 
location  of  75  per  cent  of  them  would  have  to  be  changed,  so 
as  to  facilitate  the  orderly,  effective,  and  economical  progress  of 
work  from  one  to  the  other.  This  and  other  eliminations  of 
wastes  doubled  the  output,  with  less  labor  costs. 

"  Coal  wastes  on  railroads  are  almost  as  bad  as  labor  and 
material  wastes.  On  a  very  large  railroad  system,  the  fuel 
charged  per  1,000  tons  of  train  weight  per  mile  averaged  260 
pounds;  yet  actual  tests  where  all  coal  used  was  weighed 
showed  a  consumption  between  terminals  of  only  90  pounds. 
This  actual  consumption  could  be  doubled,  be  made  180  pounds, 
yet  this  standard  be  only  60  per  cent  of  the  coal  paid  for.  .  .  . 


4  ADMINISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

"  IVIr.  Taylor  found  a  labor  efficiency  of  only  28  per  cent  in 
the  rough  labor  employed  in  the  Bethlehem  Steel  Company's 
yards.  The  writer,  by  time  studies,  determined  an  efficiency 
of  only  18  per  cent  in  a  gang  of  laborers  excavating  a  founda- 
tion, and  even  less  on  some  construction  work  in  the  erection 
of  the  large  office  buildings  in  New  York. 

"  Inefficiency  is  not  a  local  e^'il.  It  extends  through  the  whole 
of  .\merican  hfe  —  extends  through  the  whole  industrial  life 
of  the  world."  ^ 

Mr.  Gilbreth,  the  leading  expert  in  motion  study,  has  esti- 
mated that  the  loss  due  to  the  inadequate  di\'ision  of  labor 
between  men  of  greater  and  less  skill  in  the  manual  trades  is 
sufficient,  if  it  could  be  saved,  to  pension  one  half  the  workers 
in  the  United  States  on  fuU  pay.« 

Science  and  industry.  —  It  is  significant  that,  at  this  time, 
the  attention  of  men  ever}~^^here  is  turrdng  to  the  scientific 
study  of  iudustrv-.  Industry-  is  the  greatest  exponent  of  action 
in  modem  life :  science  is  the  chief  exponent  of  modem  thought : 
much  is  to  be  hoped  from  the  union  of  the  two.  The  contrast 
between  the  efficiency  of  science  and  the  iuefficiency  of  tradi- 
tion has  been  so  strikiugly  illustrated  iu  mediciue  and  surgery, 
and  in  warfare,  that  the  inference  can  no  longer  be  repressed 
that  science  can  hke^Tse  help  industry-  onto  a  higher  plane 
of  efficiency.  In  a  couple  of  decades  the  general  attitude  of 
business  men  toward  science  has  changed  from  neglect  or 
distrust  to  profound  respect. 

Already  there  has  been  con^-incing  contact  between  science 
and  industry-.  Science  has  de^"ised  many  new  processes  and 
compounded  new  materials  and  constructed  useful  instruments 
of  precision.  Some  one  of  the  many  branches  of  engineering 
now  reaches  almost  everj-  industry-.  Already  the  geologist 
directs  the  miner,  while  the  lumberman  begins  to  respect  the 
forester,  and  the  farmer  asks  for  the  appointment  of  a  district 

^  Efficiency  as  a  Basis  for  Operation  and  Wages,  X.  Y..  1909,  pp. 
15-24.  -  F.  B.  Gilbreth.  Motion  Study,  X.  Y.,  1911.  pp.  73-74. 


THE  NEW  METHOD  AND   THE  NEW  SPIRIT  5 

adviser  who  has  been  educated  at  an  agricultural  college.  As 
men  of  scientific  training,  the  engineers  are  having  a  wide  range 
of  administrative  duties  thrust  upon  them ;  while  in  the  demand 
for  trained  accountants  and  actuaries  and  emplojTiient  officers 
and  secretaries  of  commercial  associations,  may  be  seen  a 
hunger  for  scientific  control  which  has  become  keen  in  all 
departments  of  practical  action.  The  general  advance  of  prac- 
tice is  betrayed  by  the  multipHed  use  of  laboratories  and 
planning  rooms,  in  the  rapid  rise  of  a  literature  devoted  to  the 
search  for  principles  apphcable  to  industrj^,  in  the  growth  of 
university  courses  in  business  administration,  and  in  the  multi- 
plication of  scientific  societies  for  various  classes  of  industrial 
experts.  We  have  already  witnessed  the  formulation  of  a  body 
of  intelligent  administrative  principles  for  the  control  of  the 
raw-material  industries,  as  the  result  of  the  "  conservation  move- 
ment." And  now  American  industry  is  concerned  with  a  newly 
announced  code  of  rules  known  as  "  scientific  management," 
which  aims  to  give  greater  precision  and  efficiency  to  the  pro- 
ductive processes  involved  in  manufacturing.  Upon  the  heels 
of  these  events  we  can  perceive  in  another  quarter  an  increas- 
ing restlessness  expressed  in  the  ^'  high  cost  of  li\4ng  move- 
ment," which  promises  to  bring  the  distributive  industries,  also, 
upon  a  new  plane  of  scientific  operation. 

The  scientific  method.  —  The  scientific  method  differs  from 
ordinary"  thinking  in  degree  rather  than  in  kind.  It  may  be 
briefly  described  as  the  orderly,  persistent,  and  thorough  use 
of  the  mind:  a  sort  of  subhmated  common  sense.  It  may  be 
more  fuUy  described  by  dividing  it  into  steps,  as  follows: 

1.  The  analysis  of  the  facts,  problems,  or  conditions,  which 
are  made  the  subject-matter  of  studj^,  into  their  elements,  to 
improve  the  ratio  between  the  difficult}^  of  the  subject  and  the 
natural  vigor  of  the  investigating  mind,  and  to  insm'e  the  col- 
lection of  data  in  a  form  sufficiently  disintegrated  to  be  manage- 
able. Professor  W.  D.  Scott,  in  one  of  his  books  says,  "  It  is  a 
general  law  of  psycholog>^  that  all  things  tend  to  fuse,  and 


6  ADMIXISTRATIOX  OF  INDUSTRIAL  EXTERPRISES 

only  those  things  are  analyzed  that  must  be  analyzed.  .  .  . 
We  do  not  at  first  perceive  the  parts  and  unite  them  to  form 
the  greater  wholes,  but  we  first  perceive  the  wholes,  and  only 
after  the  process  of  analysis  has  been  completed  do  we  perceive 
the  pans."  ^ 

2.  A  veiy-  complete,  and  even  exhaustive  collection  of  data, 
sufficient  to  make  it  c-ertain  that  the  law  of  the  subject  is  fully 
recorded,  and  to  reduce  accidental  errors  and  other  variations 
due  to  chance  to  a  negligible,  or  at  least  to  a  definitely  calculable, 
percentage. 

3.  The  classification  and  arrangement  of  facts  in  such  a 
telling  manner  as  to  show  all  significant  agreements,  differences. 
and  concomitant  variations  between  them,  so  that  event  Ling 
may  be  brought  to  bear  clearly  and  definitely  in  answer  to  a 
given  question;  and  so,  also,  that  the  juxtaposition  of  ideas 
will  finally  lead  the  mind  to  take  the  fourth  step. 

4.  The  making  of  inferences,  or  the  drawing  of  conclusions, 
from  the  facts  by  induction,  deduction,  analog}',  or  any  other 
Ic^cal  method;  using  ingenuity  to  choose  the  most  effective 
order  and  combination  of  these  methods,  and  imagination  to 
increase  to  the  utmost  the  ^-igor  and  span  of  the  mind. 

In  inductive  reasoning  the  order  of  procedure  is  from  the 
specific  to  the  general,  beginning  with  indi^-idual  facts  and 
building  up  to  principles.  Deductive  reasoning  pa^es  from 
the  general  to  the  specific,  showing  that  principles  necessitate 
certain  specific  facts,  or  that  restricted  principles  are  contained 
within  tho^  of  a  more  general  nature.  There  is  no  conflict 
between  the  proper  functions  of  inductive  and  deductive  reason- 
ing; the  only  matter  for  dispute  is  their  relative  fitness  in  any 
particular  case,  considering  the  nature  of  the  subject-matter, 
and  the  character  of  the  indi\'idual  minds  involved.  Most 
persons  use  induction  and  deduction  in  the  most  intimate  alter- 
nation. 

Analogy  rests  upon  the  perception  of  a  like  arrangement 
1  Theory  of  Advertising.  Boston,  1903,  pp.  9S-99. 


THE  NEW  METHOD  AXD   THE  NEW  SPIRIT  7 

between  the  parts  of  two  distinct  bodies  of  truth,  and  the 
inference  that  what  is  true  in  one  set  of  circumstances  is  hkely 
to  be  true,  in  some  degree,  of  similar  circumstances.  The  value 
of  the  analogy  lies  in  the  fact  that  by  it  certain  cases,  in  which 
the  relations  are  clear  and  conspicuous,  can  be  used  to  famiharize 
the  mind  with  the  nature  of  a  relation  so  that,  when  similar 
phenomena  are  studied,  we  are  able  to  detect  the  presence  of 
the  relationship,  even  though  it  be  subtle  and  partly  hidden  in 
its  new  form. 

The  inference  or  new^  idea  which  is  the  product  of  investiga- 
tion is  not  to  be  at  once  peimitted  to  exercise  full  and  unre- 
stricted influence  upon  the  judgment,  but  only  such  influence  as 
will  facilitate  the  taking  of  the  fifth  step. 

5.  New  inferences  are  to  be  subject  to  criticism  and  test  in 
every  possible  way,  by  the  use  of  established  facts,  to  determine 
whether  these  inferences  are  truth  or  error.  Ultimate  rehance 
is  placed  upon  the  harmony  of  all  parts  of  truth  with  each  other, 
and  upon  the  equal  vaUdity  of  truth  for  all  normally  constituted 
minds. 

Those  who  think  over  their  experiences,  and  deduce  general 
conclusions  from  them,  soon  raise  themselves  out  of  the  con- 
fusion of  specific  instances,  pass  beyond  the  limitations  of  rules 
of  thumb,  and  liberate  themselves  from  the  laborious  safeguards 
of  mere  retentive  memory^  As  the  late  Professor  William 
James,  said:  "The  best  possible  sort  of  sj^stem  into  which  to 
weave  an  object,  mentally,  is  a  rational  system,  or  what  is  called 
a  '  science.'  Place  the  thing  in  its  pigeon-hole  in  a  classifica- 
toiy  series;  explain  it  logically  by  its  causes,  and  deduce  from 
it  its  necessary^  effects;  find  out  of  what  natural  law  it  is  an 
instance  —  and  you  then  know  it  in  the  best  of  all  possible 
ways.  A  '  science '  is  thus  the  greatest  of  labor-saving  contri- 
vances. It  reheves  the  memory^  of  an  immense  number  of 
details,  replacing,  as  it  does,  merely  contiguous  associations  by 
the  logical  ones  of  identity,  similarity,  or  analog^-.  If  you 
know  a  '  law,'  j^ou  may  discharge  your  memory  of  masses  of 


8  ADMIXISTRATIOX  OF  IXDUSTRIAL   EXTERPRISES 

particular  instances,  for  the  law  wiU  reproduce  them  for  you 
whenever  you  require  them."  ^ 

Motion  study  as  an  illustration  of  the  scientific  method.  — 
Let  U5  select  two  illustrations  to  show  the  scientific  method  of 
soh-ing  problems  of  production,  and  to  give  some  indication  of 
the  efficiency  which  may  be  attained  by  its  aid. 

Mr.  Frank  B.  Gilbreth,  a  mechanical  engineer  and  contractor, 
who  in  his  youth  had  learned  the  bricklayers  trade,  some  years 
ago  came  under  the  influence  of  Mr.  F.  W.  Taylor,  the  chief 
exponent  of  "  Scientific  Management."  He  determined  to 
study  the  process  of  la\-ing  brick,  to  see  whether  or  not  improve- 
ment could  be  made  in  it.  At  first  sight  the  undertaking  seemed 
presumptuous.  Brickla>TQg  is  one  of  the  oldest  of  the  crafts, 
ha\'ing  a  history  dating  from  Babylon  and  Xineveh.  For  sev- 
eral hundred  years  no  noteworthy  improvement  in  processes  had 
been  made.  ^Ir.  Gilbreth,  however,  made  persistent  obser\'a- 
tions  of  the  most  detailed  character,  disentangling  the  processes 
into  the  element aiy  movements  composing  them,  and  obsen-ing 
the  position  and  character  of  the  apparatus  and  suppKes  and 
finished  work  which  determined  the  efficiency  of  each  movement. 

The  tracUtional  method  of  la^-ing  brick  is  familiar  to  every- 
one. ^Ir.  Gilbreth  foimd  tenders  bringiog  up  thick  mortar  and 
unselected  brick  to  the  scaft'olding,  and  dumping  them  at  the 
feet  of  the  masons.  The  scaffolding  was  raised  only  at  inter- 
vals, when  further  reaching  was  impossible,  and  was  then  put 
up  even  with  the  wall.  He  foimd  the  masons  reaching  and 
stepping  and  stooping  to  get  mortar  and  brick,  often  pausing 
to  work  up  the  mortar  or  select  the  best  face  of  a  brick.  On 
the  wall  the  mortar  was  spread  and  cut  off,  the  ends  of  the  brick 
were  buttered,  and  the  brick  was  tapped  into  position  with 
the  handle  of  the  trowel.  The  mortar  squeezed  out  by  the  tap- 
ping was  then  cut  off  and  disposed  on  the  wall  or  the  board. 
In  this  way  there  was  completed  a  c>'cle  of  operations  contain- 
ing eighteen  elements. 

^  Talks  to  Teachers  on  Psychology,  X.  Y.,  1599,  p.  126. 


THE  NEW  METHOD  AND   THE  NEW  SPIRIT  9 

Mr.  Gilbreth  soon  began  to  introduce  changes.  One  of  the 
first  things  done  was  to  devise  a  new  scaffolding.  This  was 
planned  to  include,  first,  a  lower  platform  consisting  of  a  front 
portion  next  the  wall,  on  which  the  mason  stands,  and  a  rear 
part,  away  from  the  wall,  along  which  the  tender  walks.  A 
second  platfonn  consists  of  a  shelf  upon  which  the  mortar  and 
brick  are  disposed  conveniently  to  the  hand  of  the  mason.  The 
front  of  the  material  shelf  is  seventeen  inches  from  the  line  of 
the  wall,  thus  eliminating  all  stooping  and  stepping  for  sup- 
phes  on  the  part  of  the  mason.  The  scaffolding  was  so  con- 
structed that  it  could  be  raised  by  the  tender,  a  few  inches  at 
a  time. 

The  order  in  which  the  brick  should  be  placed  in  the  wall  was 
next  studied.  A  sequence  was  worked  out  for  each  type  of 
wall,  involving  the  least  total  travel  in  laying  up  a  given  number 
of  courses.  To  save  the  time  used  b}^  the  mason  in  picking  out 
sound  brick  and  selecting  the  best  face,  low-priced  helpers  were 
employed  to  do  this  work  on  the  ground;  the  brick  bemg  sent 
to  the  mason,  and  sometimes  to  the  job,  in  packets  of  twenty 
four  selected  brick,  each  brick  having  the  best  face  up.  To 
avoid  loss  of  time  with  the  mortar,  a  box  was  devised  w^ith 
sloping  sides  so  that  the  mason  might  insert  the  trowel  without 
looking,  while  his  eyes  followed  the  other  hand  to  the  brick 
packet.  Strict  control  of  the  consistency  of  the  mortar  was 
instituted  so  that  a  brick  could  be  pushed  into  its  place  on  the 
w^all  without  tapping,  and  without  cutting  off  extra  mortar. 

By  means  of  such  improvements  this  ancient  craft  has  been 
completely  changed.  Of  the  eighteen  processes  previously 
performed  by  the  mason,  ten  have  been  eliminated,  one  has 
been  arranged  to  appear  only  in  every  other  cycle,  three  have 
been  combined  with  other  elements,  and  two  have  been  improved. 
The  apparatus  has  all  been  redesigned  —  even  a  fountain 
trowel  being  invented;  the  materials  have  been  standardized 
in  quahty  and  located  at  the  most  convenient  points;  the  most 
economical    movements    and    sequences    of    movements    have 


10       ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

been  adopted;  and  a  rational  division  of  labor  has  been  worked 
out  between  mason  and  helper.  As  a  result  of  these  changes, 
a  mason  can  now  lay  350  brick  per  hour  with  no  more  fatigue 
than  the  laying  of  120  brick  per  hour  would  have  entailed  under 
the  old  sj^stem. 

The  speeding  of  machines  as  an  illustration  of  the  scientific 
method.  —  Another  example  of  the  utility  of  the  scientific  method 
may  be  found  in  the  investigations  made  by  Messrs.  Taylor, 
Sinclair,  Gantt,  Barth,  and  others,  into  the  elements  which 
compose  the  problem  of  setting  the  proper  speed  for  a  machine 
tool  in  cutting  a  metal.  The  history  of  this  investigation  is 
given  by  Mr.  Taylor  as  follows:  ''  In  1881,  m  the  machine 
shop  of  the  Midvale  Steel  Company,  the  writer  began  a  sys- 
tematic study,  by  devoting  the  entire  time  of  a  large  vertical 
boring  mill  to  this  work,  with  special  arrangements  for  varying 
the  drive  so  as  to  obtain  any  desired  speed.  The  needed  uni- 
formity of  the  metal  was  obtained  by  using  large  locomotive 
tires  of  known  chemical  composition,  physical  properties,  and 
hardness,  weighing  from  1,500  to  2,000  pounds.  For  the 
greater  part  of  the  succeeding  twenty-two  years  these  experiments 
were  carried  on,  first  at  Midvale,  and  later  in  several  other 
shops,  under  the  general  du-ection  of  the  writer,  bj^  his  friends 
and  assistants,  six  machines  having  been  at  various  times  es- 
pecially fitted  up  for  this  purpose.  The  exact  determination 
of  these  laws  and  their  reduction  to  formulae  have  proved  a 
slow  but  most  interesting  problem." 

We  may  pause  to  remark  that  the  accurate  fixing  of  the  vari- 
ables involved,  and  so  the  final  setting  of  the  most  profitable 
speed  in  metal  cutting,  is  a  problem  which  could  by  no  possibil- 
ity have  been  solved  by  the  mechanic  unfamiliar  with  higher 
mathematics,  through  the  use  of  ordinary  experience;  nor  could 
it  have  been  transmitted  from  one  workman  to  another  as  a 
rule  of  thumb  or  craft  tradition.  The  variables  entering  into 
the  case  have  been  enumerated  by  Mr.  Barth  as,  1,  The  size 
and  shape  of  the  tools  to  be  used,  2,  The  use  or  not  of  a  cool- 


THE  NEW  METHOD  AND  THE  NEW  SPIRIT  11 

ing  agent  on  the  tool,  3,  The  number  of  tools  to  be  used  at 
the  same  time,  4,  The  length  of  time  the  tools  are  required 
to  stand  up  to  the  work  (hfe  of  the  tool),  5,  The  hardness  of 
the  material  to  be  turned,  6,  The  diameter  of  the  material 
or  work,  7,  The  depth  of  the  cut  to  be  taken,  8,  The  feed 
to  be  used,  9,  The  cutting  speed,  10,  The  cutting  pressure 
on  the  tool,  11,  The  speed  combmation  to  be  used  to  give 
at  the  same  time  the  proper  cutting  speed  and  the  pressure 
required  to  take  the  cut,  and,  12,  The  stiffness  of  the 
work. 

To  return  to  Mr.  Taylor's  recital  of  the  history  of  the  experi- 
ment, he  says:  "  By  far  the  most  difficult  undertaldng  has  been 
the  development  of  the  methods  and  finally  the  appliances 
{i.e.  shde  rules)  for  making  practical  use  of  these  laws  after 
they  were  discovered.  The  difficulty,  from  a  mathematical 
standpoint,  of  obtainmg  a  rapid  and  accurate  solution  of  this 
problem  will  be  appreciated  when  it  is  remembered  that  twelve 
independent  variables  enter  into  each  problem,  and  that  a 
change  in  any  of  these  will  affect  the  answer. 

"  In  18S4  the  writer  succeeded  in  making  a  slow  solution  of 
this  problem  with  the  help  of  his  friend,  Mr.  Geo.  M.  Smclair, 
by  indicating  the  values  of  these  variables  through  curves,  and 
laying  down  one  set  of  cui^^es  over  another.  Later  my  friend, 
Mr.  H.  L.  Gantt,  after  devoting  about  li  years  exclusively  to 
this  work,  obtained  a  much  more  rapid  and  simple  solution. 
It  was  not,  however,  until  1900,  m  the  works  of  the  Bethlehem 
Steel  Company,  that  Mr.  Carl  G.  Barth,  with  the  assistance  of 
Mr.  Gantt,  and  a  small  amount  of  help  from  the  writer,  suc- 
ceeded in  developing  a  shde  rule  by  means  of  which  the  entire 
problem  can  be  accurately  and  quickly  solved  by  any 
mechanic."  ^ 

It  is  necessary  to  design  a  sHde  rule  for  each  type  of  machine 
on  the  basis  of  the  number  of  tools  to  be  used,  the  cooling 
device,  the  attainable  speeds,  and  the  power  of  the  machine 
1  F.  W.  Taylor,  Shop  Management,  pp.  179-180. 


12        ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

to  resist  stresses.  When,  further,  there  has  been  a  proper 
standarclLzation  of  the  size  and  shape  and  material  of  the  tools, 
and  of  the  depth  of  cuts  for  given  classes  of  work:  and  after 
allowance  has  been  made  for  the  hardness  of  the  material,  and 
the  stiffness  of  the  work,  it  is  possible  to  sift  the  problem  down 
to  a  few  combinations  of  speed,  feed,  and  life  of  tool.  Choosing 
the  most  efficient  combinations,  special  shde  rules  can  be  pre- 
pared to  indicate  quickly  what  pulley  and  cone  combinations 
must  be  used  to  drive  the  tool  at  the  indicated  speed  on  work  of 
a  given  diameter. 

Difficulties  of  application. —It  is  to  be  expected  that  the 
project  of  iatrodueuig  a  new  method  of  handliug  the  practical 
problems  of  iudustrv'  will  encounter  difficulties.  The  champions 
do  not  at  once  acquire  perfection  id  practice;  and  as  they  feel 
their  way  toward  a  new  point  of  \'iew  their  utterances  are  not 
even  entirely  consistent.  The  great  mass  of  miuds  are  mildly 
n^ative.  preferring  that  some  one  else  should  *'  waste  money" 
on  expeiiments.  Active  hostility  arises  from  those  who  think 
their  organization  or  their  cause  is  in  danger. 

It  is  easy  to  misunderstand  the  nature  of  a  movement  like 
that  to  employ  scientific  methods.  In  the  past,  science  apphed 
to  industry'  has  meant  the  handing  over  of  some  new  material, 
or  instrument  of  precision,  by  scientific  men  to  capitalists  for 
development.  Or  it  has  meant  the  installation  here  and  there 
in  industiy  of  a  man  of  scientific  training,  to  control  some  par- 
ticularly intricate  process.  The  present  movement  signifies 
that  aU  the  problems  of  industry-  —  administrative,  commer- 
cial, and  financial,  as  well  as  those  of  a  physico-technical 
character  —  are  to  be  looked  upon  as  problems  of  science,  to 
be  investigated  with  the  care  and  thoroughness  heretofore 
characteristic  of  pure  scientific  research  only. 

It  may  be  objected  that  old  methods  in  industry  have  proved 
their  fitness  by  sur^-i^-ing:  and  that  there  is  a  hazard  of  a  new 
method  not  proving  appKcable.  The  scientific  method  is  not, 
however,  something  cLifi'erent   in  kind  from  orthnarv  methods 


THE  NEW  METHOD  AND  THE  NEW  SPIRIT  13 

of  thinking,  but  is  rather  thinking  raised  to  a  high  standard  of 
strictness  and  completeness.  It  has  no  quarrel  with  the  sudden 
illumination  of  intuition  or  the  slow  wisdom  of  unsj^stematized 
experience.  The  scientific  method  has  never  had  to  retreat 
from  any  field  in  which  it  has  been  established;  and  it  has 
already  produced  brilliant  results  m  industr^^ 

In  carrying  the  methods  of  research  over  into  industry  it 
must  be  recognized  that  financial  and  time  limitations  will 
exert  an  important  effect  upon  the  procedure  followed  in  investi- 
gation. An  endowed  research,  or  a  research  carried  on  as  an 
avocation  subsidiary-  to  teaching  in  institutions  of  higher 
learning,  may  be  excused  from  strict  accounting  as  to  the  rela- 
tion between  results  and  expenditure  in  a  measure  that  indus- 
trial research  cannot  be.  Nevertheless,  concessions  should  not 
be  allowed  to  sap  the  significant  characteristic  out  of  the  new 
movement,  for  the  purport  of  it  consists  precisely  in  that, 
whereas  temporary  and  superficial  methods  have  long  been 
in  vogue,  it  is  now  proposed  to  see  what  thorough-going 
investigations  will  accomphsh. 

Closely  coupled  with  this  point  is  the  further  one  that,  in 
industrial  investigation,  the  working  h5i)othesis  must  play  an 
important  part.  While  results  in  pure  science  may  be  long 
withheld  from  appKcation  until  ideally  complete  and  ideally 
confirmed,  in  industrial  research  ultimate  goals  will  be  reached 
rather  through  a  series  of  approximations,  at  each  step  of  which 
intermediate  results  wiU  be  used  to  secure  a  differential 
advantage  in  competition,  by  which  the  next  step  in  advance 
is  financed. 

In  industrial  research,  where  the  factors  involved  are  always 
numerous,  great  care  will  always  be  required  to  determine  the 
comparability  of  data;  and  a  large  allowance  will  always  be 
necessary  for  disturbing  conditions.  In  many  branches  of 
scientific  research  it  is  possible  to  bring  conditions  under  such 
control  as  to  largely  eliminate  disturbing  influences.  A  labora- 
tory may,  indeed,  be  viewed  as  an  instrumentality  for  reducing 


14       ADMIXISTRATIOX  OF  INDUSTRIAL  ENTERPRISES 

the  number  of  variable  factors  which  require  to  be  dealt  with 
at  one  time.  But  in  industrial  research  the  laboratory-  is  the 
wealth-producing  and  distributing  system  upon  which  society 
depends  for  the  satisfaction  of  its  current  needs.  This  equip- 
ment can  only  to  a  very  sHght  degree  be  turned  from  its  original 
purpose  to  serv^e  as  a  laboratory-.  When  the  United  States 
Steel  Corporation  desired  to  compare  the  records  of  various 
plants  of  a  similar  character,  it  had  first  to  install  a  uniform 
s>-stem  of  cost  accounting.  A  basic  cost  was  then  determined 
for  each  plant.  By  fixing  a  series  of  permissible  differences  in 
costs,  to  allow  for  inequalities  in  the  conditions  of  different 
plants,  it  became  at  length  possible  to  compare  individual 
records  faMy  with  a  standard  of  attainable  cost,  made  by 
averaging  the  results  of  the  six  best  establishments.  Thus  an 
internal  competition  of  records  was  inaugurated  which  proved 
to  be  more  searching  in  its  discover}-  of  the  true  causes  of  effi- 
ciency and  inefficienc}-  than  the  pre^-ious  competition  of  prices 
upon  the  open  market  had  been. 

Industrial  research  requires  the  reduction  of  final  recommen- 
dations to  simple  form,  to  insure  rapid  and  general  utilization. 
Of  this  the  history-  of  the  apphcation  of  the  slide  rule  to  machine 
speeding  affords  an  excellent  example.  CompHcations  may  be 
httle  noticed  among  experts,  but  when  experts  undertake  to 
prescribe  standard  practice  for  industry-,  the  methods  must  be 
such  as  can  be  understood  and  controlled  by  the  average  busi- 
ness administrator. 

The  Xew  Spirit 

When  a  group  of  new  methods  show  themselves  in  any  depart- 
ment of  practical  action,  it  usually  imphes  that  some  funda- 
mental point  of  ^-iew  has  been  changed  and  that  a  basic 
transformation  is  taking  place  which  \\iU  mean  new  decisions 
upon  mam^  specific  matters.  "WTien  we  say  that  a  man  has 
become  animated  by  a  new  spirit  or  a  new  point  of  view,  we 
mean  that  he  has  grasped  an  idea  which  has  far-reaching  con- 


THE  NEW  METHOD  AND  THE  NEW  SPIRIT  15 

nections,  and  which  enters  as  a  component  factor  into  the 
formation  of  a  wide  range  of  practical  judgments.  That  such 
a  master-idea  underlies  "  Scientific  Management "  was  aflSrmed 
by  ^Ir.  F.  W.  Taylor  in  the  following  remarkable  passage. 
"  Scientific  management,"  said  he,  "  is  not  any  efiiciency  device, 
not  a  device  of  any  kind  for  securing  efficiency;  nor  is  it  any 
group  of  efficiency  devices.  It  is  not  a  new  sj^stem  of  figuring 
costs.  It  is  not  a  piece-work  system;  it  is  not  a  bonus  system; 
it  is  not  a  premium  system;  it  is  no  scheme  for  paying  men; 
it  is  not  holding  a  stop  watch  on  a  man  and  writing  things  down 
about  him;  it  is  not  time  study;  it  is  not  motion  study  nor  an 
analysis  of  the  movements  of  men;  it  is  not  the  printing  and  rul- 
ing and  unloading  of  a  ton  or  two  of  blanks  on  a  set  of  men  and 
sa>-ing,  'Here's  your  system;  go  use  it.'  It  is  not  divided  fore- 
man ship  or  functional  foremanship;  it  is  not  any  of  the  devices 
which  the  average  man  calls  to  mind  when  scientific  management 
is  spoken  of.  I  am  not  sneering  at  cost-keeping  systems,  at  time 
study,  at  functional  foremanship,  nor  at  any  new  and  improved 
scheme  of  pacing  men,  nor  at  any  efficiency  devices,  if  they  are 
really  devices  that  make  for  efficiency.  I  believe  in  them ;  but 
what  I  am  emphasizing  is  that  these  devices  in  whole  or  in  part 
are  not  scientific  management;  they  are  useful  adjuncts  to  scien- 
tific management,  so  are  they  also  useful  adjuncts  of  other  systems 
of  management. 

"  In  its  essence,  scientific  management  involves  a  complete 
mental  revolution  on  the  part  of  the  workingmen  engaged  in 
any  particular  establishment  or  industry  —  a  complete  mental 
revolution  on  the  part  of  these  men  as  to  their  duties  toward 
their  w^ork,  toward  their  fellow  men,  and  toward  their  employers. 
And  it  involves  the  equally  complete  mental  revolution  on  the 
part  of  those  on  the  management's  side  —  the  foreman,  the  super- 
intendent, the  owner  of  the  business,  the  board  of  directors  — 
a  complete  mental  revolution  on  their  part  as  to  their  duties 
toward  their  fellow  workers  in  the  management,  toward  their 
workmen,  and  toward  all  of  their  daily  problems.     And  without 


16        ADMIXISTRATIOX  OF  INDUSTRIAL  EXTERPRISES 

this  complete  mental  revolution  on  both  sides  scientific  manage- 
ment does  not  exist."  ^ 

The  scientific  spirit.  —  There  are  certain  qualities  of  will, 
and  attitudes  of  mind,  and  virtues  of  disposition  which  are 
favorable  to  the  use  of  the  scientific  method.  Aware  of  the 
many  imperfections  of  the  human  mind  —  cramped  as  it  is 
by  habit,  dulled  by  ignorance,  and  swept  by  emotion  —  the 
general  attitude  of  the  searcher  after  truth  should  be  watch- 
fulness with  regard  to  himself  and  tolerance  for  the  mistakes 
of  others.  The  perception  of  truth  demands  complete  eradica- 
tion of  such  preconceptions  and  prejudices  as  may  prevent  due 
allowance  for  anj^  pertinent  fact;  it  calls  for  breadth  of  interest 
to  welcome  suggestions  from  any  source;  and  it  requii'es  con- 
centrated attention  to  make  progress  by  fully  comprehending 
each  thing  in  its  turn.  The  ideal  is  a  fluent,  sensitive,  teachable 
spirit. 

The  scientific  attitude  is  one  of  candor,  compounded  of  con- 
fidence and  humility,  in  facing  the  tmth,  and  in  confonning 
to  reason,  whatever  that  may  necessitate.  ]Miss  Edith  Wyatt, 
who  was  retained  by  a  prominent  publisher  to  investigate  the 
condition  of  women  in  certain  establishments  operated  accord- 
ing to  efficiency  principles,  testified  before  a  Congressional 
Committee,  "  I  have  never  seen  so  great  a  spirit  of  candor  in 
any  estabhshment  in  regard  to  hours,  or  wages,  or  any  particular 
as  in  these  estabhshments  where  this  system  has  been  tried."  ^ 

The  progress  of  an  investigation  aiming  at  the  truth  demands 
watchfulness  not  to  be  bound  b}^  class  tows,  or  old  habits  of 
mental  approach.  Thoroughness  is  attained  by  energy-  and 
tenacity  in  working  oneself  deeply  into  a  subject.  Clearness 
comes  from  pondering  the  facts  agam  and  again  in  one's  own 
mind,  and  from  filtering  one's  opinions  through  the  minds  of 
others.     Consistency    results    from    carefully    unravelling    and 

^  Hearings  before  the  H.  of  R.  Sp.   Com.  on  The  Taylor  and  Other 
Systems  of  Shop  Management,  Washington,  D.  C,  1912,  III,  p.  1387. 
2  Ibid.,  1912,  I,  p.  600. 


THE  NEW  METHOD  AND  THE  NEW  SPIRIT  17 

explicitly  stating  everything  which  is  involved  as  impKcit  or 
assumed  in  the  conclusions  one  holds. 

When  once  a  position  has  been  taken  as  the  result  of  an 
investigation,  the  scientific  temper  exerts  itself  to  avoid  dogma- 
tism and  undue  fixity  of  opinion.  It  strives  to  hold  judgment 
more  or  less  open  on  all  complex  matters,  so  that  new  truth  will 
be  hospitably  received,  while  j^et  making  necessary  concessions 
to  the  requirements  of  immediate  action  through  temporary 
poHcies  or  working  hypotheses. 

Under  failure  much  can  be  retrieved  by  a  courage  which 
is  sufficient  to  look  a  situation  squarely  in  the  face,  and  so 
collect  the  necessary  knowledge  for  a  more  successful  pohcy. 

The  search  for  truth  should  not  be  allowed  to  degenerate 
into  dull  mole-work,  luit  should  ever  be  bravely  conceived  as 
a  joyous  mode  of  self-expression,  stimulated  by  exultation 
in  the  triumph  of  mind  over  matter.  The  greedy  and  anxious 
person,  unduly  concerned  \\nth  thoughts  of  self- advancement, 
works  with  divided  aim,  the  law  of  the  subject  and  the  law  of 
self-interest  continually  clashing,  so  that  energy  is  consumed 
by  internal  friction.  The  best  mental  work  involves  a  certain 
abandonment  to  the  subject,  which  opens  it  freely  to  view 
throughout  its  entire  panorama  without  distortion.  It 
involves,  also,  a  spirit  of  unselfishness  which  permits  true 
objectivity,  and  makes  one  spiritually  akin  to  all  things,  so 
that  one  perceives  the  true  positive  principle  in  all  things, 
by  which  (and  not  by  reason  of  defects)  they  exist  and 
perform  a  function. 

Professional  pride.  —  When  many  persons  become  conscious 
of  their  life  work  as  a  form  of  art,  or  as  a  social  service,  and  when 
their  devotion  to  this  work  is  intensified  by  the  knowledge  that 
many  others,  in  the  same  field  of  endeavor,  are  united  with  them 
in  a  sort  of  invisible  brotherhood,  it  is  possible  for  their  personal 
pride  in  individual  achievements  to  be  so  broadened  and  elevated 
by  consciousness  of  class  that  it  becomes  professional  pride. 
This  feeling  which  is  so  marked  among  scientific  workers  has 


18        ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

been,  hitherto,  but  httle  developed  in  industn-,  for  industry- 
has  had  to  contend  \s-ith  infinite  diversity  of  institution,  and 
with  methods  which  were  the  progeny  of  tradition  and  make- 
shift. As  a  result  of  the  movement  to  introduce  scientific 
methods  we  may  hope  to  see  an  industrial  practice  arise  which, 
from  its  precision  and  appropriateness,  will  exert  a  charm  as  a 
true  art,  and  will  therefore  pro\'ide  a  new  center  of  interest  to 
stand  alongside  the  profit  of  the  result,  namely,  the  elegance 
of  the  means.  As  professional  pride  appears  among  business 
men  we  may  be  sm-e  that  two  conditions  are  obsen'ed:  that 
methods  are  based  on  principle,  and  that  ultimate  aims  are 
elevated  by  altniism. 

The  human  factor. — It  is  natural  to  proceed  from  physical 
problems,  and  from  calculations  as  to  raw  materials  and  ma- 
chiner>'  and  power,  to  sohcitude  over  sanitation  and  accident 
prevention,  and  the  laws  of  fatigue,  and  the  conditions  which 
evoke  loyalty  and  enthusiasm  in  a  force.  As  progress  is  made 
in  the  standardization  of  physical  conditions,  competitive 
endeavor  must  concentrate  itself  upon  the  mental  and  moral 
forces  involved  in  the  productive  process.  The  ultimate  ad- 
ministrative problem  of  socialized  production  is  the  handling 
of  the  hiunan  stuff.  And  science  is  revealing  to  us  that  this 
stuff  is  dehcate  tissue  which  must  be  protected  not  only  from 
accident,  disease,  overstrain,  and  premature  invahdism,  but 
from  monotony,  apathy,  and  antagonism  of  spirit. 

Ethics. — -111  this  involves  an  ethical  problem,  because  it  is 
a  question  of  shaping  conduct  in  conformity-  with  the  require- 
ments of  a  wide  range  of  social  reactions.  We  have  a  religious 
faith,  with  a  body  of  commandments  all  embarrassingly  apphc- 
able  to  daily  life,  but  we  have  been  chiefly  interested  to  use  it 
as  a  passport  to  a  berter  future  world.  And  we  have  a  produc- 
tive process  which  is  highly  social  in  its  essential  nature,  but 
we  have  endeavored  to  operate  it  as  a  means  of  indi^-idual 
wealth-getting,  under  a  rather  meanly  conceived  program  of 
every  man  for  himseff.     But  now  "  We  have  begun  quite  gen- 


THE  NEW  METHOD  AND  THE  NEW  SPIRIT  19 

erally  to  conceive  slowly  a  new  and  different  type  of  business 
man/'  says  the  author  of  "  Inspired  Millionaires,"  ''  that  will 
not  have  to  be  apologized  for  by  always  saying  what  a  fine 
personaUty  he  is  in  private  fife.  .  .  .  We  have  made  up  our 
minds  that  business  should  not  be  any  longer  a  specially  marked 
off  barbarian  countiy,  a  fighting-place  or  cock-pit  where  a  man 
can  go  out  and  crowd  and  bully  and  strike  below  the  belt  and 
steal  for  his  family,  and  then  come  back  into  the  house  and  put 
on  his  coat  and  coo  to  the  baby  and  be  a  beautiful  character 
until  ten  the  next  morning."  ^ 

BIBLIOGRAPHY 

General  references  on  business  administration. 

Going,  Chas.  B.:   Principles  of  Industrial  Engineering,  N.  Y.,  1911. 
Kimball,  D.  S.:   Principles  of  Industrial  Organization,  N.  Y.,  1913. 
Ennis,  W.  D.:  Works  Management,  N.  Y.,  1911. 
Duncan,  J.  C.:   Principles  of  Industrial  Management,  N.  Y.,  1911. 
Carpenter,  C.  U.:  Profit  Making  in  Shop  and  Factory  Alanagement,  N.  Y., 

190S. 
Diemer,  Hugo:   Factory  Organization  and  Administration,  N.  Y.,  1910. 
The  Library  of  Factory  Management,  6  vols.,  A.  W.  Shaw  Co.,  Chicago, 

1915. 

Especially  valuable  are  the  files  of 

The  Engineering  Magazine,  N.  Y.  (mo.), 

System,  Chicago  (mo.), 

American  Machinist,  N.  Y.  (weekly). 

Factory,  Chicago  (mo.). 

Industrial  Engineering,  N.  Y.  (mo.). 

Iron  Age,  N.  Y.  (weekly). 

The  Engineering  News,  N.  Y.  (weekly). 

References  on  the  Scientific  Method  in  Industry. 
Pearson,  Karl;    The  Grammar  of  Science,  London,   1900.     Particularly 

Ch.  I. 
Strong,  T.  B.  (Editor):    Lectures  on  the  Method  of  Science, — Lecture  I, 

The  Scientific    Method  as  a   Mental   Operation,  by  Thomas  Case, 

Oxford,  1906. 

^  G.  Stanley  Lee,  Inspired  Millionaires,  Northampton,  Mass.,  p.  295. 


20        ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

Gore,  Geo. :  The  Art  of  Scientific  Discovery,  Part  V,  London,  1878. 

Darwin,  Chas.  F.:  The  Life  and  Letters  of  Charles  Darwin,  Including 
an  Autobiographical  Chapter.     Edited  by  his  Son,  X.  Y.,  1SS7. 

Carpenter.  R.  C,  and  Diederichs.  H. :  Experimental  Engineering  and  Man- 
ual for  Testing,  X.  Y.,  1911.  Ch.  I,  Introductory.  Ch.  11,  Apparatus 
for  Reduction  of  Experimental  Data  and  for  Accurate  Measurement. 

Gilbreth,  F.  P.:   Motion  Study,  X.  Y..  1911. 

Gilbreth,  F.  P.:  Bricklaj-ing  System,  X.  Y..  1909. 

Brinton.  W.  C:   Graphic  Methods  for  Presenting  Facts,  X.  Y.,  1914. 

Ennis.  W.  D.:  Works  Management,  X.  Y.,  1911.  Ch.  Ill,  Statistical 
Records. 

Gibson.  Geo.  A.:  An  Elementary  Treatise  on  Graphs.  London,  1910. 

Jones.  Edw.  D.:  The  Business  Administrator:  His  Modeb  in  War.  State- 
craft, and  Science,  X.  Y.,  1914.  Chs.  V-IX  inch,  on  The  Ad- 
ministrator as  a  Scientist. 

References  on  the  Neip  Spirit  in  Industry. 

Lee.  Gerald  S.:  Inspired  Millionaires,  Xorthampton,  Mass..  1912. 

Redfield,  W.  C:  The  Xew  Industrial  Day.  X.  Y.,  1912. 

Lewis.  E.   St.  Elmo:  Getting  the  Most  Out  of  Business.  X.  Y..  1915. 

Cabot,  Dr.  Rich.  C:  What  Men  Live  By.  Boston,  1914.  Part  I,  .Work, 
Chs.  I  to  IX  inch 

Jones,  Edw.  D.:  The  Business  Administrator:  His  Models  in  War,  State- 
craft, and  Science,  X.  Y.,  1914.  Ch.  I,  The  Rise  of  a  Xew  Profes- 
sion.    Chs.  X  to  XII  inch,  on  The  Administrator  as  a  Diplomat. 


CHAPTER  II 
LAUNCHING  AN  INDUSTRIAL  ENTERPRISE 

The  idea.  —  The  first  step  in  the  inauguration  of  an  enter- 
prise is  tlie  development  of  the  idea  that  there  is  a  specific 
business  opportunity.  This  idea  may  arise  from  the  knowledge 
of  an  unused  supply  of  raw  materials  or  an  undeveloped  inven- 
tion, from  the  observation  of  the  inferiorit}^  of  some  article  or 
service  now  holding  the  field,  from  a  knowledge  that  certain 
firms  are  making  lai'ge  profits  or  are  turning  away  business,  or 
from  an  impression  that  a  favorable  opportunity  has  at  length 
arrived  for  utilizing  the  knowledge  one  has  gained  of  a  particu- 
lar branch  of  business. 

Inasmuch  as  a  sanguine  disposition,  coupled  with  j^outh  and 
good  health,  makes  new  ventures  seem  attractive;  and  since 
there  is  a  general  tendency  for  mmds  which  are  "  made  up  "  to 
collect  only  confirmative  testimon}^  and  neglect  opposing  evi- 
dence, special  precautions  should  be  taken  in  forming  the  first 
decisions.  So  prone  are  lo\dng  relatives  to  believe  that  one  is 
capal^le  of  an}i:hing,  and  so  pohtic  are  friends  in  leavmg  disil- 
lusionment to  the  course  of  events,  that  the  business  pioneer 
must  create  subjective  restraints  to  prevent  becoming  over- 
warmed  by  his  own  initiative,  or  being  driven  bj^  false  pride 
arising  from  the  consciousness  of  being  publicly  committed. 
One  should  even  go  further  than  this,  and  search  actively  for 
negative  influences  and  unfavorable  signs.  The  records  of 
business  failures  show  that  the  presumption  is  strongly  against 
the  average  new^  enterprise.  The  power  of  independent  leader- 
ship is  rare;  nevertheless  the  industrial   community  is  con- 

21 


22        ADMINISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

stantly  harassed  by  the  hair-trigger  initiative  of  a  vast 
number   of  ignorant  and  inadequately-financed  individuals. 

Necessary  persons.  —  The  success  of  most  enterprises  is 
dependent  upon  the  quality  of  that  small  group  of  leading  spirits 
which  is  free  to  assert  whatever  administrative  talent  it  possesses 
by  reason  of  the  possession  of  full  executive  authority,  and 
which  is  strongly  stimulated  to  exertion  by  the  pledging  of  estate 
and  reputation.  As  this  group  is  at  first  easily  formed,  but  is 
difficult  to  alter  later  on,  the  original  choice  of  entrepreneurs 
should  be  carefully  considered.  Inasmuch  as  talent^  should 
conform  to  functions,  there  should  be  included  in  the  original 
group  a  person  able  to  deal  adecjuately  with  each  important 
phase  of  the  business.  This  would  ordmarily  mean  a  financial 
man  to  take  a  leading  part  in  raising  capital  and  in  keeping  the 
finances  in  order,  a  technical  expert  to  plan  the  processes  of 
manufacture  and  recommend  proper  equipment,  a  selling 
expert  acquainted  with  the  market  to  be  entered,  and  a  general 
executive  able  to  formulate  comprehensive  policies  and  to  hold 
the  various  lines  of  specialized  effort  in  proper  proportion. 
Under  certain  circumstances  it  may  be  desirable  to  add  to  the 
group  of  organizers  a  corporation  law\'er,  a  representative  of 
local  banking  interests,  and  one  or  more  persons  connected 
with  firms  which  are  likely  to  be  important  patrons. 

As  to  how  far  proprietorship  interest  should  be  extended  down 
the  line  of  officers  toward  subordinate  executives,  no  general 
rule  can  be  given.  On  the  one  hand,  there  is  the  danger  of 
gathering  m  some  officious  and  intermeddling  subordinates; 
on  the  other  hand,  there  is  no  energizer  like  final  responsibiht\\ 
]\Ir.  Carnegie  once  said,  ''  I  don't  believe  any  corporation  can 
manage  a  business  like  a  partnership.  When  we  were  partners 
we  could  run  all  'round  corporations.  You  take  twenty-five 
young  men,  give  them  an  interest  in  the  business,  and  each  one 
will  be  looking  around  for  the  leaks.''  ^ 

1  Iron  Age,  Jan.  18,  1912,  p.  197.  Such  an  interest  could,  of  course,  be 
pro\'ided  for  promising  young  men  in  a  business  quite  as  well  under  the 


LAUNCHING  AN  INDUSTRIAL  ENTERPRISE  23 

The  market  and  its  fluctuations.  —  In  the  analysis  of  the 
market  a  variety  of  questions  suggest  themselves.  What  is  the 
present  demand  for  the  article?  If  there  is  no  active  demand, 
as  in  the  case  of  a  new  thing,  what  is  the  need  or  potential 
demand,  judged  by  the  relation  the  proposed  product  will  sus- 
tain to  present  consumers'  habits  and  to  articles  which  are 
already  in  use?  Is  the  article  a  necessity  or  a  luxurv'?  WiU  it 
be  sold  chiefly  on  price  or  on  quahty?  WiU  the  market  be  steady 
or  fluctuating?  The  fluctuation  of  demand  which  must  usually 
be  encountered  in  supph^Dg  a  luxurs-  suggests  that  the  pro- 
duction of  some  staple  article,  or  article  in  special  demand  in 
hard  times,  be  coupled  \sith  it.  The  more  distant  future  of  a 
projected  enterprise  raises  the  question  of  the  manner  in  which 
the  market  will  be  effected  by  general  movements  such  as  the 
increase  of  population,  a  continued  rise  in  the  cost  of  h\TDg, 
the  spread  of  education,  the  increase  of  restrictive  legislation, 
any  improvement  in  the  means  of  transportation  such  as  in 
local  trucking  or  in  suburban  electric  traction,  the  continued 
settling  of  the  West,  the  exhaustion  of  natural  resources  such  as 
forest  resources  in  certain  locaHties,  etc.,  etc. 

Price  minus  cost  equals  profit.  —  Examining  somewhat  more 
in  detail  the  economic  significance  of  a  market,  it  may  be 
asked,  TMiat  are  the  current  prices?  If  the  prices  seem  to  be 
very  high  caution  should  be  redoubled.  There  is  usually  some 
catch.  This  is  a  country'  of  active  and  intelligent  people,  and 
there  is  an  abundance  of  capital  and  administrative  talent  on 
the  lookout  for  opportunities,  so  that  an;yi:hing  so  obvious  as  a 
set  of  prices  conspicuous!}'  out  of  line  with  normal  profits 
cannot  long  endure.  Investigation  of  such  cases  should  be 
directed  to  ascertain  whether  demand  is  not  seasonal,  or  answer- 
able to  some  non-periodic  fluctuation,  or  whether  there  is  not 
some  unnoticed  accompanying  free  service  rendered,  or  whether 

corporate  form  of  organization  as  by  a  partnership.  Mr.  Carnegie  did,  in 
fact,  pro\dde  such  an  incentive  in  the  Carnegie  Steel  Company,  when  that 
business  was  a  corporation.     See  Chapter  XIII,  pp.  259-260. 


24        ADMIXISTRATIOX  OF  IXDUSTRIAL  ENTERPRISES 

there  does  not  exist  a  trade  group  of  products  one  element  of 
which  alone  is  peiTuitted  by  custom  to  cany  the  profit  which 
must  suffice  for  the  entii'e  group.  ^Mnat  is  the  depth  of  a  mar- 
ket, that  is  to  say,  the  elasticity  of  demand  under  pressure  of 
an  increase  of  supply?  What  increased  productive  capacity 
is  in  prepai'ation,  and  due  to  become  effective  within  a  given 
time?  From  prices  costs  must  be  subtracted  before  profits  are 
arrived  at.  The  costs  of  a  young  and  small  estabUshment  are 
not  those  of  a  large  and  favorably  known  business.  It  is  an 
easy  mistake  for  the  founders  of  a  new  business  to  carr}'  away 
with  them  the  ratios  of  the  estabhshed  busmesses  from  which 
they  resign,  and  to  apply  these  ratios  in  the  estimates  of  a  small 
concern  which  for  the  first  few  years  must  cany  the  extra  costs 
of  estabhshing  a  going  business. 

Policies  of  dominant  interests.  —  In  these  days  of  powerful 
corporations  and  of  unrevealed  alliances  resting  upon  harmony 
of  interest,  interlocking  dh'ectorates,  or  joint  banking  control, 
it  is  wise  for  a  new  business  to  consider  the  extent  and  temper  of 
the  opposition  it  may  have  to  encounter.  Some  of  our  great 
interests  have  admirably  preser\'ed  the  peace  with  theii'  smaller 
rivals,  but  others  have  waged  a  warfare  of  extermination.  Intol- 
erance may  be  shown  through  the  monopoly  of  basic  mate- 
rials, through  the  trade  ostracism  of  exclusive  bu^^-ing  and  selhng 
contracts,  and  through  ''  predator^'  competition."  Predatoiy 
competition  is  a  plan  which  can  be  followed  by  a  corporation 
which  covers  an  extensive  temtoiy  in  deahng  with  a  competiton 
whose  operations  are  confined  to  few  localities.  It  consists  in 
reducing  prices  at  competitive  pomts  to  a  figure  which  destroys 
profits,  and  in  elevating  prices  at  non-competitive  points  suffi- 
ciently to  recoup  the  loss.  American  law  has  not  yet  de^'ised  a 
protection  from  this  savage  pohcy. 

Scale  of  operations.  —  The  proper  scale  for  initial  operations 
is  a  function  vanning  with  the  degree  of  certainty  of  ultimate 
success.  ^Tiere  experienced  pei'sons,  backed  with  ample 
capital,  enter  upon  the  production  of  a  staple  article,  the  firet 


LAUNCHING  AN  INDUSTRIAL  ENTERPRISE  25 

object  may  reasonably  be  the  purely  capitalistic  one  of  attaining 
the  economies  of  production  on  a  large  scale.  But  where  the 
establishment  of  a  new  enterprise  involves  the  trying  out  of  a 
number  of  experiments  as  to  processes  or  selling  plan,  the  initial 
scale  of  operations  should  be  as  small  as  will  yield  the  desired 
experimental  knowledge.  Such  a  business  should  aim  to  be  at 
first  as  purely  as  possible  an  enterprise  selling  personal  service, 
until  the  experiments  show  that  it  is  safe  to  use  capital  in  it 
freely.  A  strong  element  of  uncertainty  always  means  that 
investments  of  a  permanent  and  specialized  character,  such  as 
those  for  buildings,  machinery,  and  manufactured  stock,  should 
be  kept  at  the  minimum ;  and  that  long-term  contracts  for  mate- 
rials, for  the  services  of  high-priced  experts,  or  for  the  use  of 
patent  rights,  should  be  avoided.  It  is  sometimes  possible,. 
in  making  a  beginning  in  manufacturing,  to  contract  for  such 
parts  or  for  such  semi-manufactured  materials  as  require  ex- 
pensive plant,  or  as  involve  in  their  production  only  ordinary 
converting  profits. 

Partnerships.  —  The  partnership  relation  has  many  disad- 
vantages for  a  business  which  is  to  use  much  fixed  capital,  or 
in  which  individual  transactions  may  involve  the  creation  of 
large  liabilities.  The  partnership  does  not  create  an  artificial 
person,  but  merely  establishes  a  limited  set  of  relations  between 
natural  persons.  Each  partner  is  an  agent  able  to  bind  the 
others  with  respect  to  all  regular  matters,  such  as  the  buying  and 
selling  of  stock  in  trade,  the  employing  of  servants  and  agents, 
the  borrowing  of  money,  or  the  issuing  of  negotiable  paper,  and 
the  compromising  or  releasing  of  claims.  While  the  acts  of  a 
partnership  are  in  the  name  of  the  firm,  the  responsibility  created 
is  individual,  and  usually  unlimited,  no  agreements  between 
the  partners  to  limit  this  liability  having  validity  as  against 
the  claims  of  outside  uninformed  parties.  When,  therefore, 
one  member  of  a  partnership  is  negligent,  or  commits  a  tort, 
or  is  guilty  of  a  fraud,  within  the  scope  of  his  authority,  his 
partners  are  equally  liable  with  him,  financially.     In  the  con- 


26        ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

duct  of  the  ordinary  affairs  of  a  partnership  a  majority  of 
persons  governs:  while,  in  case  of  any  important  departure 
in  policy,  any  dissenting  member  can  oppose  an  effectual  bar. 
No  partner  can  compete  with  his  firm,  nor  can  he,  without 
express  permission,  sell  to  it,  or  buy  from  it,  or  otherwise  deal 
with  it  as  an  outsider,  without  rendering  himseff  Uable  to  the 
others  for  an  accounting  of  profits.  Interest  in  a  partnership 
is  not  transferable  without  unanimous  consent.  Unless  there 
is  an  agreement  to  the  contrary,  the  death  or  withdrawal  of  a 
member  dissolves  the  partnership.  A  partner  may  even  be 
held  responsible  for  the  acts  of  a  firm  after  he  has  withdrawn 
from  it  if  any  third  parties,  not  having  received  notice  of  his 
withdrawal,  deal  with  the  firm  relying  upon  his  continued 
Hability. 

The  corporation.  —  An  industrial  corporation  is  a  collection 
of  natural  persons  empowered  by  law  to  perform  a  designated 
range  of  industrial  acts,  and  to  enjoy  the  facility  of  operating 
as  a  unit  or  artificial  person.  The  members  of  a  corporation 
can  contract,  hold  property,  and  sue  and  be  sued  in  the  cor- 
porate name.  They  may  possess  a  common  seal.  They  may 
frame  by-laws  for  their  own  government.  They  have  the  power 
of  continuous  succession,  during  the  prescribed  period  of  cor- 
porate existence.  In  contrast  with  the  partnership,  a  corpora- 
tion has  the  advantages  that  it  cannot  be  dissolved  by  the  act 
of  an  individual  member,  that  its  members  are  not  agents  unless 
specially  appointed,  and  that  the  Habihty  of  the  shareholders 
is  limited,  as  a  rule,  to  the  par  value  of  the  stock  held  by  them; 
managerial  control  lies  with  a  majority  of  the  shares.  The 
stocks  and  bonds  of  a  corporation  possess  many  advantages  as 
investments  for  persons  who  do  not  desire  to  be  active  in  man- 
agement. For  this  reason  a  corporation  has  an  advantage 
over  a  partnership  in  raismg  capital  and  in  borrowing  money. 

The  corporation  charter.  —  The  drafting  of  the  charter  of 
a  corporation  is  an  important  matter,  inasmuch  as  only  such 
powers  are  possessed  by  a  business  as  are  expressly  conferred. 


LAUNCHING  AN  INDUSTRIAL  ENTERPRISE  27 

or  as  are  implied  in  the  realization  of  its  avowed  lawful  objects 
or  by  reason  of  its  existence  as  a  corporation.  An  industrial 
corporation  has,  usually,  the  implied  power  to  borrow  money, 
to  appoint  agents,  to  issue  negotiable  paper  and  receive  the 
same  in  payment  of  debts,  to  take  and  hold  property  in  trust 
and  execute  the  trust  when  conformable  to  expressed  objects, 
to  purchase  and  dispose  of  its  own  stock,  and  to  purchase  and 
hold  as  much  land  as  may  be  necessary  to  accomphsh  the  pur- 
poses of  its  creation.  It  has  not  the  power  to  lend  money, 
except  surplus  funds,  unless  banking  powers  have  been  con- 
ferred. It  has  not  the  power  to  become  surety  for  another, 
unless  it  be  given  the  franchise  of  a  surety  company.  Nor  has 
it  the  impUed  power  to  take  the  stock  of  another  corporation, 
except  for  debt  or  in  payment  for  goods,  and  then  only  with  the 
intention  of  selling  it  and  not  of  holding  it.  A  manufacturing 
corporation  cannot  engage  in  buying  and  selling  goods,  except 
as  this  may  be  necessary  or  incidental  to  its  declared  object. 
A  corporation  empowered  to  manufacture  one  kind  of  goods 
cannot  manufacture  other  kinds.  A  trading  corporation  em- 
powered to  buy,  sell,  and  hold  certain  kinds  of  goods  cannot 
trade  in  other  goods.  Any  action  of  a  corporation  beyond 
the  scope  of  its  authority  is  ultra  vires  and  void.  An  injunc- 
tion against  such  contemplated  action  may  be  secured  by  a 
dissenting  shareholder. 

In  draftmg  a  charter  two  rules  of  legal  terminology  should  be 
held  in  mind,  (a)  The  express  mention  of  a  thing  is  tanta- 
mount to  an  exclusion  of  other  related  thmgs.  (b)  When 
a  general  term  follows  a  special  term  it  is  held  to  apply  only 
to  the  kind  or  class  of  thing  which  has  been  specially  mentioned. 
Thus,  a  corporation  authorized  to  carry  on  "a  business  of 
mechanical  engineers  and  general  contractors  "  was  held  only 
to  have  the  power  to  do  such  acts  of  "  general  contractors  " 
as  it  was  usual  for  "  mechanical  engineers  "  to  perform. 

Local  capital.  —  New  concerns  of  small  size,  known  only 
near  home,  will  usually  be  dependent  upon  local  capital.     The 


28        ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

local  investor  has  a  natural  advantage  in  keeping  track  of  his 
interest.  This  makes  the  local  man  of  means  the  logical 
patron  of  new  small  enterprises.  It  is,  as  a  general  rule,  easiest 
to  raise  money  for  a  new  estabUshment  in  those  locahties  which 
have  already  before  them  the  example  of  successful  establish- 
ments in  the  same  line.  As  a  rule,  also,  an  individual  will 
more  easily  make  a  new  investment  in  a  line  of  industrj'^  in 
which  he  has  pre^-iously  had  success,  than  in  an  untried  line. 

Trustees.  —  When  mvestors  do  not  constitute  a  local  group, 
able  easily  to  keep  in  touch  with  the  progress  of  launching,  it 
is  ad\isable  that  subscriptions  to  stock  should  be  deposited  with 
a  financially  responsible  trustee,  such  as  a  bank  or  trust  company, 
which  trustee  is  bound  by  the  terms  of  a  carefully  drawn  agree- 
ment. Such  an  agreement  should  provide  that,  if  sufficient 
funds  are  not  subscribed  within  a  given  period  to  make  the 
undertaking  possible,  the  money  of  subscribers  shall  be  re- 
turned to  them,  less  an  agreed  percentage  allowed  to  cover 
the  expenses  of  promotion.  Upon  receipt  of  sufficient  funds, 
the  trustee  should  be  empowered  to  apply  them  for  exphcitly 
designated  purposes,  upon  the  presentation  of  vouchers  drawn 
by  the  proper  officers,  and  under  a  sj^stem  of  inspection  calcu- 
lated to  insure  the  honest  use  of  the  funds  for  the  intended 
purposes. 

The  promoter.  —  If  the  leading  individuals  in  an  enterprise 
have  not  the  time  or  the  talents  for  the  work  of  promotion,  it 
may  be  desirable  to  employ  a  professional  promoter.  Promo- 
tion in  recent  years,  in  this  country,  has  become  a  business  in 
itself.  A  class  of  men  has  sprung  up  to  sei-ve  as  middlemen  or 
intermediaries  between  men  with  money  to  invest,  and  men 
with  undeveloped  propert}^  or  unutilized  abiUty  which  is  for 
sale.  The  less  influential  of  these  middlemen  employ  themselves 
chiefly  with  the  functions  of  stock  and  bond  salesmen,  organiz- 
ing campaigns  to  dispose  of  securities.  The  standard  promoter, 
however,  is  an  expert  in  assembling  a  proposition.  This  he 
does  by  securing  options  upon  the  necessaiy  property,  and  by 


LAUNCHING  AN  INDUSTRIAL  ENTERPRISE  29 

working  out  the  plans  of  organization  and  operation  far  enough 
to  reveal  the  significance  of  the  project  to  the  capitalists  who 
are  to  be  approached. 

Sjrndicate  managers.  —  The  highest  class  of  promoters  is 
composed  of  the  representatives  of  syndicates  of  banks  and 
groups  of  large  private  investors.  These  persons,  after  making 
rigid  investigation,  recommend  the  financing  of  the  propositions 
they  approve  to  the  monej^ed  interests  which  depend  upon 
their  judgment.  The  financing  which  sjmdicate  managers 
provide  usually  takes  the  form  of  the  purchase  of  a  block  of 
securities  of  the  newly  organized  corporation  at  special  prices, 
care  being  taken  to  secure  sufficient  representation  upon  the 
board  of  directors.  When  the  financed  corporation  has  estab- 
lished a  record  of  earnings  so  that  the  market  may  be  trusted  to 
take  care  of  itself,  or  when  the  period  within  which  it  was  under- 
taken to  control  the  market  has  expired,  the  syndicate  members 
may  dispose  of  their  securities,  making  such  profit  as  they  can 
above  the  purchase  price. 

Engineering  promoters.  —  There  are  in  existence  a  number 
of  promoting  corporations  which  have,  in  addition  to  the  usual 
financial  machinery,  a  corps  of  engineers  able  to  take  charge  of 
construction,  and  a  corps  of  administrators  able  to  supervise 
going  businesses.  These  promoting  engineers  are  able  to  pass 
upon  propositions  the  anah'sis  of  Avhich  demands  engineering 
skill.  Upon  accepting  a  project  they  construct  the  works  and 
receive  their  pay  in  securities.  They  then  either  sever  con- 
nections by  selling  the  securities,  or  continue  in  the  control  of 
the  management  as  the  representatives  of  investors  affiliated 
with  them.  Engineering  promotion  of  this  character  is  now 
important  in  the  buildmg  and  operation  of  irrigation  works, 
street  railways,  water-works,  gas-works,  and  plants  furnishing 
electric  light  and  power. 

Application  of  funds.  —  The  funds  in  the  hands  of  a  new 
business  must  be  allotted  in  such  a  way  as  to  cover  various 
classes  of  requirements.     A  portion  will  go  into  fixed  and  rela- 


30        ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

lively  permanent  forms,  such  as  buildings,  machinery,  and 
office  equipments;  another  part  must  be  reserved  for  raw  mate- 
rials, finished  stock,  pay  roll,  credit  advances  to  customers, 
and  other  rapidly  changing  forms  of  investment.  This  classi- 
fication brings  into  view  the  contrast  betw^een  fixed  and  cir- 
culating capital,  with  regard  to  which  the  following  pomts 
should  be  noted. 

1.  Circulating  capital  is  that  which  encounters  frequent 
Uquidation,  or  change  in  the  character  of  the  property  which 
represents  the  values.  The  opportunity  of  changing  the 
form  of  investment  frequently  occurs.  Fixed  capital  requires 
considerable  periods  of  time  for  the  wearing  out  of  the  property 
and  the  gradual  release  of  the  values  for  reinvestment.  As 
the  values  disappear  from  the  original  fixed  forms  they  find 
existence,  in  transmuted  form,  in  the  increase  of  the  values  of 
the  materials  worked  upon.  Liberal  fixation  of  capital  is  appro- 
priate only  for  enterprises  of  a  permanent  nature. 

2.  Fixed  capital  may  be  of  various  degrees  of  specialization. 
SpeciaUzation  may  be  of  form  (only  useful  for  certain  purposes) 
or  of  place  (only  available  for  enterprises  which  can  accept  the 
location).  When  a  factors^  is  built  in  a  thriving  city,  and  is 
of  standard  loft  design  and  arrangement,  so  that  it  can  be 
turned  to  a  variety  of  manufacturing  uses,  a  considerable 
portion  of  the  values  locked  up  may  be  recovered  bj^  sale,  if 
the  original  project  fails.  If,  however,  a  plant  is  located  in 
the  country,  and  is  strictly  specialized  for  one  purpose,  if  that 
use  fails,  the  loss  is  hea^'y^  The  degree  to  which  capital  should 
be  specialized  is  a  function  of  confidence  in  the  soundness  of  the 
nature  of  the  project  and  of  its  location. 

3.  The  recover}^  of  the  values  in  fixed  capital  is  a  process 
requiring  the  continuous  supphang  of  circulating  capital. 
Materials,  labor,  and  repairs  must  be  pro\'ided  to  support  the 
productive  process;  and  without  them  the  values  locked  up  in 
fixed  forms  will  l^e  wasted.  ^Ir.  James  Hartness  has  said, 
"  A  plant  and  business  is  useless  when  not  in  motion,  and  when 


LAUNCHING  AN  INDUSTRIAL  ENTERPRISE  31 

under  headway  requires  money.  Money  must  be  poured 
into  it  steadily  to  an  amount  which,  every  year,  generally 
equals  the  total  capital  in  the  business.  Much  time  and 
energ}^  have  been  consumed  in  careful  consideration  of  the  cost 
of  the  plant,  but  not  enough  thought  has  been  given  to  the 
money  tied  up  in  the  business  in  other  ways."  ^  In  short,  as 
Poor  Richard  said,  "  It  is  easier  to  build  two  chimneys  than 
maintain  one  in  fuel." 

4.  To  a  limited  extent  there  is  a  reciprocal  relation  between 
the  amounts  of  fixed  and  of  circulating  capital  required  to  carry 
on  a  productive  process.  A  factor}^  building  of  concrete  has  a 
lower  insurance  and  maintenance  charge  than  a  frame  building. 
^Yith  sufficient  mass  of  traffic,  a  well-built  railroad  will  attain 
lower  ton-mile  costs  than  a  cheaply  built  one.  The  normal 
balance  between  fixed  and  circulating  capital  is  reached  when 
the  sa\ang  in  operating  expenses  to  be  effected  by  the  next 
increment  of  fixed  capital  is  equal  to  the  fixed  charge  which 
that  increment  wiU  create. 

5.  There  is  danger  in  the  launching  finance  of  underestimat- 
ing a  certain  class  of  necessary  expenditures  which  result  in 
the  intangible  forms  of  capital  bearing  the  names  "  good  will  " 
and  "  going  value."  Among  such  expenditures  are  the  costs 
of  organization,  of  introducing  a  new  product  to  the  trade,  of 
maintaining  a  state  of  productive  efficiency  during  the  initial 
period  of  waiting,  and  of  learning  many  kinds  of  wisdom  by 
experience. 

Voting  control.  —  In  the  early  financing  of  a  business  the 
question  of  control  is  constantly  involved.  In  the  day  of  small 
things  a  few  hundred  dollars  may  decide  where  control  shall 
rest  and,  if  growth  is  later  made  from  undivided  earnings,  and 
if  successive  issues  of  stock  are  made  proportionate  to  holdings, 
such  early  investments  may  decide  in  whose  hands  large  ulti- 
mate values  shall  rest.  By  the  use  of  preferred  stock  to  repre- 
sent money  and  property  contributed,  and  common  stock  to 

1  Human  Factors  in  Works  Management,  N.  Y.,  1912,  pp,  133-134. 


32        ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

represent  senices,  patent  riglits,  etc.,  it  is  possible  to  adjust 
voting  control  in  any  desired  manner  among  a  gi-oup  of  persons. 
Time  of  flotation.  —  The  business  of  the  country-  passes 
through  a  succession  of  trade  cycles  of  uncertain  length,  but 
averaging,  perhaps,  ten  years.  The  order  of  changes  in  a  cycle 
may  be  indicated  approximately  as  follows: 

1.  Money  is  plentiful  and  interest  rates  are  low. 

2.  Gilt-edged  securities  rise. 

3.  Speculative  securities  rise. 

■i.   Commodities  of  short  life  rise  in  price.     Business  pros- 
perity. 

5.  CommocUties  of  long  life,  such  as  real  estate,  the  value 
of  which  is  paitly  a  forcast  of  future  earning  power,  rise. 

6.  ]Money  becomes  scarce  and  interest  rates  are  high. 

7.  Gilt-edged  secmities  fall. 

8.  Speculative  secmities  fall.     Crisis  followed  b}'  depression. 

9.  Commodities  of  short  life  fall. 
10.   Commodities  of  long  life  fall. 

1.  ]\Ioney  is  again  plentiful  and  interest  rates  are  low. 
It  has  been  suggested,  on  the  basis  of  the  trade  c^tIcs,  that 
the  financing  of  new  enterprises,  or  of  extensions  of  old  ones, 
may  be  most  advantageoush'  canied  out  dming  periods  3  and 
4,  while  securities  are  still  being  absorbed  freely  at  high  prices, 
and  before  a  panic  breaks.  The  money  so  raised  can  then  be 
apphed  in  providing  equipment  during  the  ensuing  depression, 
while  the  prices  of  materials  and  labor  are  low.  The  aim  of  a 
launching  plan  thus  timed  would  be  to  prepare  for  business 
slowly  and  thoroughly,  to  trj-  out  proces.ses,  select  the  cream  of 
the  labor  market,  establish  discipline,  and  settle  all  factors 
into  a  smooth  working  order,  so  as  to  be  ready  to  take  advantage 
of  the  first  recoveiy  in  demand. 

Mr.  Matheson  has  said:  '"If  [an  establishment]  is  trans- 
ferred at  a  time  of  high  prices,  the  real  value  depends  mainly 
on  the  readiness  of  the  factor3\  If,  ]:>ecause  of  high  prices,  capi- 
talists begin  to  build  new  works,  it  will  often  be  found  that  by 


LAUNCHING  AN  INDUSTRIAL  ENTERPRISE  33 

the  time  they  are  ready  prices  have  fallen,  probably  because 
new  factories  have  increased  the  productive  power,  or  even 
because  the  mere  prospect  of  new  factories  induces  competitors 
to  lower  their  demands.  It  is  in  a  time  of  deep  depression 
that  prudent  purchasers  will  often  find  the  best  opportunity 
for  bu3'ing  or  building  a  factor\\"  ^ 

The  method  of  financing  should  be  adjusted  to  the  stage  of 
the  trade  cycle.  In  the  beginning  of  an  optimistic  expansion 
bonds  ma}^  be  offered  to  good  advantage.  At  a  later  time, 
when  speculative  enthusiasm  is  strong,  stocks  will  j^ield  better 
returns.  During  depressions  short-term  notes  maj^  be  issued,  if 
the  credit  of  the  issumg  corporation  is  high.  The  financing 
plan  may  be  adjusted  to  the  conditions  of  the  money  market 
and  the  security  market  by  vars^ing  the  proportion,  rate  of  yield, 
term,  denomination,  and  guaranteed  rights  of  the  securities 
issued. 

Processes.  —  A  preliminaiy  study  of  the  steps  of  manufac- 
ture should  be  made  with  the  utmost  thoroughness.  If  new 
processes  are  to  be  introduced,  it  must  be  determmed  whether 
the  apparatus  deserves  patenting,  or  whether  an}^  feature  is 
to  be  preserved  as  a  trade  secret.  In  this  connection  a  word  of 
warning  may  be  dropped.  Successful  processes  or  apparatus 
are  usually  a  matter  of  slow  gro\\i;h.  A  new  mechanical  con- 
trivance, which  is  to  be  offered  to  the  pubHc  as  a  consumer's 
good,  is  usually  in  a  crude  state  when  patented;  it  is  almost 
never  brought  to  perfection  until  the  designer's  original  idea 
has  been  thoroughly  revised  in  the  fight  of  shop  experience  in 
production  and  consumer's  experience  in  utiUzation.  Further- 
more, an  American  patent,  covering  an  idea  of  real  value,  has 
been  defined  by  those  who  have  had  experience  as  a  ''  ficense  to 
litigate." 

Buildings  and  equipment.  —  It  is  onl}^  on  the  basis  of  the 
exact  determination  of  the  nature  and  sequence  of  manufactur- 
ing processes  that  the  character  of  the  buildings,  machinery, 

^  The  Depreciation  of  Factories,  3d  Ed.,  London,  1903,  pp.  11-4-115. 


34        ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

yard  spaces,  track  connections,  and  general  lay-out  of  an 
establishment  can  be  specified  and  contracted  for.  There  are 
two  difficulties  with  reference  to  equipment  which  lie  in  wait 
for  a  new  concern.  The  first  is  that  articles  must  be  bought  by 
persons  who  are  more  or  less  inexperienced,  and  of  whose  igno- 
rance certain  supply  dealers  are  willing  to  take  advantage.  The 
second  is  that  the  new  equipment  must  be  tried  out  by  a  force 
not  yet  seasoned  to  its  duties  nor  accustomed  to  working 
together,  with  the  probable  result  of  low  speeds,  heavy  wear 
and  tear,  considerable  spoiled  work,  and  numerous  accidents. 

Second-hand  plant.  —  The  advice  of  men  of  experience  is 
against  the  purchase  of  second-hand  plant  or  machinery.  The 
record  of  a  failed  concern  casts  an  unpleasant  shadow  upon  a 
new  tenant.  An  establishment  of  old  design,  built  with  a  dif- 
ferent original  purpose  in  mind,  imposes  many  limitations  of 
arrangement,  lighting,  heating,  ventilation,  fire  hazard,  and 
power  supply.  The  exact  state  of  old  equipment  is  hard  to 
judge,  not  only  with  reference  to  physical  condition,  but  as  to 
how  obsolete  it  is  in  comparison  with  new  models.  The  buyer 
of  new  machinery  can  rely  upon  coming  fairly  abreast  of  the 
evolution  of  machine  design.  With  such  purchases  comes  the 
maker's  original  guarantee.  By  patronizing  firms  of  established 
probity  and  technical  efficiency,  much  help  will  be  received  in 
the  w^ay  of  expert  advice  as  to  the  best  models  to  select  for  the 
purpose  in  hand,  and  in  the  form  of  preliminary  instruction 
in  the  methods  of  operation. 

There  are  exceptions  to  the  rule  that  second-hand  equipment 
is  not  worth  while.  In  businesses  like  ore  concentration  and 
reduction,  w^here  sudden  changes  in  the  nature  of  the  ore  body 
may  require  the  rebuilding  of  a  mill,  or  in  the  shipping  industry, 
where  the  opening  of  canals  or  changes  in  tariffs  or  mercantile 
marine  legislation  require  changes  in  the  nature  of  the  vessels 
on  certain  routes,  it  is  possible  to  buy  second-hand  equipment 
which  is  in  good  condition  and  free  from  the  stigma  of  failure. 
Again,  in  businesses  like  most  of  the  public  service  industries, 


LAUNCHING  AN  INDUSTRIAL  ENTERPRISE  35 

where  duplicate  equipment  is  required  to  insure  continuous 
operation  in  case  of  breakdowns  or  repairs,  second-hand  appa- 
ratus will  often  answer  adequately  the  purpose  of  stand-by 
equipment  to  be  used  as  a  reserve  for  emergencies. 

Managerial  staff.  —  It  goes  without  saying  that,  as  the  gen- 
eral scheme  of  functions  of  a  mechanical,  mercantile,  and  financial 
nature  is  conceived,  steps  should  be  taken  to  clearly  define  the 
various  classes  of  executive  duties,  and  to  group  them  in  such 
a  way  that  there  will  be  arranged  for  each  person  a  consistent 
range  of  functions,  and  that  these  persons  will  be  bound  together 
in  a  well-balanced  administrative  hierarchy.  It  is  an  advan- 
tage to  record  the  administrative  determinations  on  a  chart  of 
authority,  as  they  are  made  to  insure  that  every  necessary 
duty  has  been  assigned,  but  that  no  one  is  overloaded.  Unless 
a  beginning  is  made  with  clear-cut  decisions  and  adequate 
records,  a  confused  temporizing  habit  of  muddhng  along  will  be 
estabhshed,  which  will  be  difficult  to  break,  not  only  because 
of  the  subtlety  of  the  repressed  attitudes  but  because  of  the 
sensibilities  which  must  be  regarded  in  carrying  through  any- 
thing which  has  the  appearance  of  a  "  shake-up." 

The  labor  force.  —  A  new  business,  having  no  men  of  its 
own  training,  must  face  the  problem  of  gathering  rapidly  a  com- 
plement of  sldlled  workmen  and  capable  foremen.  Men  who 
come  together  from  various  shops,  bringing  with  them  different 
ideas  as  to  speed  and  method  of  work,  as  to  the  etiquette  of 
foremanizing,  and  as  to  shop  rules  generally,  have  to  be  brought 
into  harmony  with  strange  policies  and  become  adjusted  to  an 
inexperienced"  staff  of  superior  officers.  A  new  management 
tends  to  fall  heir  to  the  riff-raff  of  the  labor  market,  which  is 
ever  moving  on  to  the  new  employer  for  reasons  best  known  to 
the  old.  Among  the  undesirable  t>T)es,  aside  from  the  dis- 
sipated and  obviously  unfit,  are  those  restless  persons  who 
never  remain  long  in  one  place,  those  enterprising  young  men 
who  represent  themselves  as  sldlled  while  they  are  "stealing  a 
trade,"  those  who  are  always  financially  embarrassed  and  ask 


36        ADMIXISTRATIOX  OF  IXDUSTRIAL   EXTERPRISES 

for  advances  and  assign  their  wages,  those  who  trv'  to  obtain 
employment  through  influence,  those  who  justify  themselves  by 
attacking  the  character  and  methods  of  pre\'ious  employers,  and 
those  men  of  capacity  who  have  turned  sour  and  become 
trouble  makers  from  enmity  for  all  placed  in  authority.  The 
emplo\TQent  officer  should  be  a  fii'st-class  man,  for  out  of  the 
rank  and  file  will  come  the  future  foremen,  and  department 
heads,  and  junior  partners. 

BIBLIOGRAPHY 

Meade,  E.  S.:  Corporation  Finance.  X.  Y..  1910.     Chs.  I,  II.  IV,  V.  VIII 

to  XIII  incl.,  XIX  to  XXV  incl. 
Haney,   L.  H.:    Business  Organization  and  Combination,    X.   Y.,    1913. 

Ch.  X\"II.  Internal  Organization  of  a  Groing  Corporation.     Ch.  X\TII, 

Promotion  as  a  Step  in  Organization.     Ch.  XIX.  Underwriting  as  a 

Step  in  Organization. 
Moore,  E.  W.:   Starting  a  Manufacturing  Business,  Sj'stem,  Sept.,  1906, 

pp.  265-26.S. 
West,  Thos.:    Inaugurating    a    Business,   Illustrated  by  the   Gray  Iron 

Foundry  Business,  Iron  Age,  May  23,  1907,  p.  1564. 
McConneU,  I.  W.:   Things  Promoters  Ignore,  Stone  and  Webster  Journal, 

Jan.  1916,  pp.  31-36. 


CHAPTER  III 

LOCATION  OF  AN  ESTABLISHMENT 

Location  determines,  to  some  extent,  the  eflBciency  of  even^ 
economic  factor.  ]Much  progress  has,  micloubtedly,  been 
made  in  a  generation  in  evening  up  local  inequahties,  and  so  in 
reducing  the  significance  of  the  factor  of  location,  by  the  stand- 
ardization of  machinery'  and  factory  buildings,  the  leveling  of 
wage  rates  and  interest  rates,  the  wide  distribution  of  technical 
infomiation  by  the  trade  press,  the  more  unifonn  operation  of 
the  agencies  of  education,  and  hj  the  standardization  of  habits 
of  consumption  over  wide  areas.  But  locahty  still  exerts  a 
decisive  influence  on  the  accessibihty  of  raw  materials,  con- 
venience to  markets,  and  the  degree  of  rivalr^^  and  emulation 
under  which  men  work.  The  smaller  an  estabhshment  the 
more  significant  is  the  question  of  location  to  it.  A  small 
estabhshment  has  chiefly  a  local  market,  and  appeals  only  to 
near-by  investors.  It  is  compelled  also  to  employ  outside 
servdce  iudustries  to  perform  a  wide  range  of  functions  for  it, 
and  so  flourishes  or  suffers  according  to  the  completeness  or 
LQcompleteness  of  the  local  equipment.  A  large  concern,  on 
the  other  hand,  can  be  more  seK-contaiued,  because  it  wiU 
support  its  own  sei'\dce  departments.  Such  a  concern,  being 
more  widely  known,  can  look  farther  afield  for  capital  and 
managerial  talent.  Its  mass  of  capital  and  its  extensive  per- 
sonnel enable  it  to  exert  a  transfoiTQuig  influence  upon  its 
neighborhood.  Whatever  the  significance  of  location  may  be, 
in  any  mdividual  case,  that  influence  is  made  well-nigh  irrevo- 
cable, when  once  determined,  by  the  difiiculty  of  moving. 

37 


38        ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

Wellington's  rule.  —  Mr.  A.  M.  Wellington,  the  author  of 
''The  Economic  Theory  of  the  Location  of  Railways"^  has 
laid  down  the  rule  that  the  best  location  for  any  economic  unit 
is  the  one  which  yields  the  largest  difference  between  capitalized 
gross  income  and  total  capitaHzed  cost.  While  this  seems  to 
be  nothing  more  than  a  financier's  way  of  saying  that  w^e  should 
locate  where  the  most  valuable  results  can  be  achieved  with 
the  least  outlay,  WelUngton  elucidates  the  special  significance 
of  the  rule  by  calling  attention  to  the  fact  that  the  costs  which 
must  be  kept  in  mind  are  not  simply  the  individual  or  internal 
costs  of  an  establishment,  but  the  entire  chain  of  costs  involved 
in  bridging  the  gap  betw^een  the  supplies  of  raw  materials  and 
the  consumers  of  the  finished  products.  Thus,  a  plant  should 
be  placed,  not  where  the  making  costs  are  least,  but  where  the 
sum  of  the  costs  for  raw  material,  transportation  of  the  same 
to  the  plant,  manufacture,  selling,  and  the  transportation  of 
finished  product  to  market  will  total  the  smallest  possible 
sum,  considering  the  market  to  be  reached. 

Nearness  to  materials.  —  There  are  a  variety  of  factors 
entering  into  material  cost.  Besides  the  ob^dous  matters  of 
original  purchase  price,  buying  expense,  and  transportation 
rate,  there  are  such  items  as  the  expense  of  the  reserve  stock 
which  must  be  carried  at  the  plant  to  allow  for  irregularity  of 
supply,  and  the  extra  converting  expense  caused  by  lack  in 
range  or  dependabihty  of  qualit}^  The  effect  of  reliability  of 
supply  and  of  a  wide  assortment  from  which  to  select  is  fre- 
quently so  great  that  an  estabhshment  will  prosper  better  in  a 
great  market  than  in  a  region  of  original  supply.  The  ideal 
location  with  reference  to  materials  is  the  one  where  all  factors 
combine  to  make  the  low^est  possible  raw-material  cost  per  unit 
of  completed  product.  The  test  is  not  the  cost  of  a  unit  of 
materials  laid  down,  but  the  material  cost  of  a  unit  of  com- 
pleted product.  In  the  latter  figure  the  relative  importance 
of  the  different  materials  involved  in  the  product  is  brought 

1  N.  Y.,  1887. 


LOCATION  OF  AN  ESTABLISHMENT  39 

to  a  final  balance.  The  location  of  perishable  or  bulky 
materials  will,  of  course,  exercise  a  special  effect  upon  material 
costs. 

Beyond  the  effect  of  location  upon  the  supply  of  such  materials 
as  are  specifically  required  by  an  industry  as  its  raw  materials, 
there  is  the  l^roader  effect  resulting  from  the  presence  or  absence 
in  the  neighborhood  of  those  natural  resources  which  are  requi- 
site for  the  well-being  of  a  body  of  people.  The  cost  of  a  raw 
material  depends  not  only  upon  the  crude  resom'ce  which  is  to 
be  directly  exploited,  but  upon  the  local  cost  of  labor,  capital, 
and  management.  The  cost  of  these  factors  wdll  in  turn  depend 
upon  whether  there  is  an  abundance  or  scarcity  of  the  things 
required  to  maintain  a  satisfactory^  standard  of  life.  It  is  said 
that  there  are  many  rich  ore  deposits  known  in  the  West  which 
are  unexploitable  because  of  inaccessibility.  This  inaccessibil- 
ity really  means  that  those  ores  are  in  a  region  bare  of  the 
resources  recjuired  to  support  life.  The  difficulty  hes  not  so 
much  in  getting  the  ore  out  as  in  getting  supplies  in  to  the  work- 
ers. If  a  raw  material  hes  in  a  region  where  timber  is  scarce, 
so  that  wood  must  be  brought  a  long  distance  for  houses;  if 
there  is  no  coal  near  by,  so  that  power  is  expensive;  if  there  is 
lack  of  water,  so  that  agriculture  is  impossible,  and  the  food  of 
men  and  horses  must  be  brought  in  by  train  and  pack  trail; 
if,  in  short,  the  material  which  is  the  object  of  calculation  is 
unassociated  with  the  other  materials  upon  which  industry 
depends,  it  wiU  need  to  possess  extraordinary  quaUty  and  quan- 
tity to  develop  any  value,  for  the  high  costs  will  fix  the  margin 
of  exploitabihty  at  a  high  point.  The  value  of  any  resource  or 
raw  material  in  a  given  location  is  partly  the  reflected  image 
of  the  general  fitness  of  that  region  for  life,  industrial  effort,  and 
civiUzation  generally.  The  great  resources  which  make  most 
regions  prosperous  are  a  fertile  soil  and  an  adequate  climate 
to  provide  cheap  food,  good  steam  coal  or  water  power  to  give 
low-priced  power,  and  adequate  structural  materials  to  make 
the  cost  of  housing  moderate. 


40        ADMIXISTRATIOX  OF  IXDUSTRIAL  ENTERPRISES 

Nearness  to  sources  of  power.  —  In  so  far  as  power  is  trans- 
foiTned  coal,  oil,  or  gas,  the  advantage  of  location  \^ith  reference 
to  these  materials  will  imply  advantage  \s-ith  reference  to  power. 
Location  close  to  water  power  will  be  attractive  for  continuous- 
process  industries,  like  flour  milling  or  paper  manufacture,  and 
for  industries,  like  pulp  mills,  which  must  locate  in  remote  dis- 
tricts where  transportation  rates  on  coal  are  high.  The  advan- 
tage of  locating  where  public  service  industries  furnish  electric 
power  consists  not  so  much  in  the  price  per  horse-power  j^ear,  as 
in  the  fact  that  capital  does  not  need  to  be  invested  in  power 
plant,  and  that  with  a  fluctuating  load  the  expense  for  power 
rises  and  falls  more  closely  in  conformity  with  the  amoimt 
used  than  is  the  case  when  a  private  power  plant  is  maintained. 

Miscellaneous  natural  advantages.  —  A  healthful  and  invig- 
orating climate,  free  from  such  violent  extremes  of  temperature 
as  make  out-of-door  operations  difl&cult,  and  without  that  exces- 
sive fluctuation  from  humid  to  diy  which  disturbs  the  physical 
condition  of  materials  in  process  of  manufacture,  is  of  advantage 
to  industiy.  The  ^nolent  fluctuations  from  which  the  central 
portion  of  the  Xoith  American  continent  suffer  make  neces- 
sary' special  precautions  in  the  way  of  building  constmction, 
and  of  systems  of  heating  and  ventilation,  to  maintain  the 
health  and  energ\^  of  operatives.  Inasmuch  as  the  prevailing 
winds  in  the  northeastern  portion  of  the  United  States  are  from 
the  west,  it  is  wise  for  factories  producing  articles  prized  for 
thek  immaculate  character  to  locate  on  the  west  or  windward 
side  of  cities  where  the  air  is  free  from  dust  and  smoke. 

Labor  supply.  —  The  supply  of  unskiUed  labor  in  a  district 
is  a  tolerably  simple  function  of  the  mass  of  total  population. 
Difficult}'  in  recruiting  a  labor  force  centres  upon  the  higher 
ranks  of  craftsmen  and  the  lower  ranks  of  clerical  and  adminis- 
trative staff.  Our  chief  dependence  for  skilled  laborers  is  at 
present  immigi^ation.  The  cities  of  the  eastern  seaboard,  and 
the  cities  of  the  North  Central  states  which  are  located  on  the 
Great  Lakes,  have  an  advantage  in  first  choice  from  the  incoming 


LOCATION  OF  AN  ESTABLISHMENT  41 

human  stream.  This  advantage  has  served,  until  recently,  to 
congest  manufacturing  unduly  in  the  northeastern  section  of 
the  country.  As  between  cities  of  similar  geographical  position 
and  attractiveness  as  labor  markets,  the  distribution  of  foreign- 
born  artisans  depends  upon  the  accident  of  the  foimation  of  a 
colony  of  persons  of  the  same  race,  language,  and  nationality, 
and  possessing  a  size  sufficient  to  satisfy  social  instincts. 

The  rehance  of  the  future  for  skilled  labor  must  be  increasingly 
upon  specially  adapted  educational  institutions.  American 
employers  have  not  yet  generally  perceived  the  profit  of  local 
trade  schools,  as  have  the  Germans.  There  seems  to  be  a  fear 
that  a  community  which  supports  a  special  type  of  school  will 
find  itself  paying  for  the  education  of  young  men  of  other 
neighborhoods.  But  a  trade  school  is  a  device  for  skimming 
the  cream  of  the  youthful  talent  of  the  surrounding  region  and 
putting  it  at  the  disposal  of  the  employers  nearest  at  hand.  The 
local  employer  enjoys  the  opportunity  of  making  first  choice 
from  the  exceptionally  capable  youths  who  have  had  the  enter- 
prise to  leave  home  in  search  of  an  education. 

As  between  city  and  village,  in  the  matter  of  labor  supply,  it 
may  be  said  that  the  large  centre  presents  the  advantage  of 
the  more  highly  skilled  labor,  and  of  the  larger  supply  of  float- 
ing labor  available  for  temporary  requirements  by  simply 
hanging  out  the  card  "  Help  Wanted."  The  small  place  offers 
a  more  steady  and  devoted  force,  and  one  the  members  of  which 
are  better  acquainted  with  each  other,  and  so  more  disposed  to 
team  work.  Village  labor  is  of  good  general  intelligence,  and 
not  easily  influenced  by  agitators  who  plan  industrial  disputes. 
And  this  supply  the  village  offers  at  lower  wages,  corresponding 
to  the  lower  costs  of  Hving. 

Capital.  —  There  is  an  economic  geography  of  the  supply  of 
loanable  capital,  and  of  the  activity  of  financial  institutions, 
as  there  is  of  raw  material  or  labor  supply.  Every  one  knows 
that,  in  a  general  way,  a  loan  or  investment  transaction  which 
in  the  East  would  pass  at  5  per  cent,  would  require  6  per  cent  in 


42        ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

the  ^liddle  West,  and  7  per  cent  in  the  Rook}-  ^Mountain  and 
Pacific  states.  ^lore  important  to  an  indi^-idual  business  con- 
cern than  the  general  level  of  rates  throughout  the  country  is 
the  fact  that  in  small  money  centres  the  banks  and  investors 
are  prepared  for  small  transactions  only,  dealing  in  money  at 
retail,  while  in  large  centres  money  is  dealt  in  at  wholesale. 
Retail  prices  are  higher  than  wholesale.  It  is  desirable,  therefore, 
that  an  industrial  institution  should  carr>-  its  financing  to  the 
largest  financial  market  upon  which  it  can  estabhsh  a  standing. 
In  behalf  of  the  bankers  in  small  places  it  may  be  said  that  they 
have  a  greater  sense  of  individual  responsibilit\'  to  take  care 
of  local  enterprises  than  have  the  banks  of  the  larger  centres. 
Association  with  other  industries.  —  Competition  between 
business  establishments  is  a  point  so  much  emphasized,  and  this 
competition  is  so  usually  interpreted  as  if  it  were  a  state  of  pure 
antagonism,  that  the  truth  is  often  overlooked  that  industries 
usually  thrive  best  in  groups. 

1.  A  number  of  similar  concerns  in  a  locality  can  usually 
secure  materials  to  better  advantage  than  any  one  can  do  single. 
An  illustration  is  the  Chicago  Union  Stock  Yards,  supported 
by  a  number  of  packers,  and  able  to  absorb  train  loads  of  cattle 
without  breaking  the  price.  This  steadiness  of  price  or 
"  depth,"  which  one  firm  alone  could  not  insure,  is  what  gives 
confidence  to  cattle  men  and  promotes  hberal  shipments.  The 
concentration  of  a  number  of  similar  establishments  serves  to 
increase  the  variety  of  materials  which  can  be  offered  by  sup- 
pHers.  This  may  be  illustrated  by  a  textile  weaving  centre 
such  as  Philadelphia.  Because  the  spinning  mills  located  in 
aU  parts  of  the  East  and  South  have  selling  agents  there,  manu- 
facturers who  desire  to  make  mixed  fabrics  or  specialty  cloths 
find  that  neighborhood  a  good  one  to  locate  in,  because  they  can 
there  secure  yam  of  any  material,  size,  color,  and  tightness  of 
twist,  at  a  moment's  notice. 

2.  Concentration  of  establishments,  even  of  a  like  kind  and 
direct    competitors,    improves    the    labor    market,    both    for 


LOCATION  OF  AN  ESTABLISHMENT  43 

emploj-er  and  employee,  in  many  ways.  The  city  of  Grand 
Rapids,  Mich.,  has  become  a  veritable  training  school  for 
cabinet  makers  and  furniture  designers  and  salesmen.  Even  the 
public  library  of  Grand  Rapids  has  speciahzed,  for  it  contains 
one  of  the  best  collections  of  books  on  furniture  in  existence. 
East  Liverpool,  Ohio,  has  become  an  objective  point  for  EngUsh 
potters.  The  potters  who  are  on  this  side  keep  up  the  supply 
by  writing  back  to  theii'  friends  in  "  the  five  towns,"  telling  them 
where  to  migrate.  A  locahty  preeminent  in  any  line  draws  to 
itself  such  skilled  workmen  as  lose  their  positions  elsewhere 
and  are  averse  to  changing  crafts,  and  such  specialists  as 
feel  safer  in  a  locahty  where  there  is  more  than  one  possible 
emploj'er. 

3.  In  specialized  centres  the  banks  become  familiar  with  the 
requirements  of  the  dominant  industiy.  They  learn  the  stand- 
ing of  the  firms  in  the  trade,  and  can  more  readily  and  safely 
discount  the  special  line  of  conamercial  paper.  And,  if  their 
resources  become  overtaxed,  the  recognition  of  their  expert- 
ness  by  banks  elsewhere  makes  it  easy  for  them  to  rediscount. 

4.  A  group  of  plants  can  jointly  produce  such  a  demand  as 
will  cause  a  variety  of  repair  and  suppty  industries  to  estabhsh 
themselves  nearby,  such  as  foundries,  machine  shops,  pattern 
makers,  mill  supply  houses,  laboratories,  mill  architects,  and 
designers. 

5.  Carrying  the  division  of  labor  a  step  further,  a  speciahzed 
industrial  centre  adds  to  the  service  industries  various  part 
makers  and  assemblers  who,  by  concentrating  upon  special 
kinds  of  work,  reach  a  high  perfection.  The  presence  of  these 
concerns  makes  it  possible  for  a  new  enterprise  to  confine  it- 
self at  will  to  a  restricted  field,  corresponding  to  its  capital  or 
technical  ability. 

6.  Finally,  a  group  of  similar  or  related  manufacturers 
estabhshed  in  one  place  serves  to  perfect  their  local  market. 
The  reputation  of  each  fiiTQ  supplements  that  of  others,  until 
the  name  of  the  town  becomes  almost  a  trade  mark,  and  a  firm 


44        ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

enjoys  prestige  from  the  mere  fact  of  location  in  the  noted  place. 
South  Bend  suggests  wagons;  Troy  stands  for  collars  and  cuffs; 
Holyoke,  Z^Iass.,  signifies  water  power  equipment;  Grand  Rapids 
means  furniture.,  and  Detroit  automobiles.     To  such  markets 


Fig.  1.     DiST.o^cz  rs-  Terais  of  TiiiE 

The  map  shows  the  average  number  of  days  required  for  package  freight 
from  St.  Louis  to  reach  the  indicated  destinations. 

consumers,  dealers,  and  would-be  agents  are  attracted,  and  the 
general  rule  that  the  seller  must  seek  the  buj-er  is,  to  some  degree, 
reversed.  A  large  specialized  market  is  able  to  afford  various 
service  uidustries  which  have  to  do  with  trading   functions, 


LOCATION  OF  AN  ESTABLISHMENT  45 

such    as    packers,    insurers,    forwarders,    professional    graders, 
commercial  photographers,  and  trade  papers. 

Economic  geography.  —  In  the  calculations  of  economic 
geograph}',  it  should  be  remembered  that  commercial  distance 
is  not  physical  distance.  Commercial  distance  is  not  measured 
in  miles  but  in  terms  of  cash  outlay,  time  expenditure,  risk, 
inconvenience,  and  the  mental  inertia  to  be  overcome.  It  is  a 
complex  of  many  factors;  and  since  it  is  not  a  simple  factor  there 
never  can  be  any  such  thing  as  a  complete  economic  map.  It 
is  possible  to  represent  the  freight  charges  of  a  single  class  rate 
from  a  single  centre  by  a  map,  but  such  a  map  will  not  correctly 
represent  the  relative  positions  of  the  places  as  viewed  from 
other  centres  of  shipment,  much  less  make  allowance  for  such 
factors  as  time  in  transit,  frequency  of  train  and  car  service,  and 
convenience  of  terminals.  To  distinguish  clearty  the  economic 
geography  of  a  region  from  the  phj^sicalgeograph}^,  and  to  conceive 
truly  the  highways  of  commerce,  and  the  forces  which  impel  or  re- 
tard the  movement  of  goods  and  persons  over  them,  is  no  smalf 
revolution  of  one's  customarj^  ways  of  thinking  of  space  relations. 

Location  and  freight  rates.  —  The  classification  rules  and  the 
freight  rate  structure  of  American  railroads  show  that  the 
strategic  places  for  the  location  of  industries  which  involve 
important  assembling  and  distributing  functions  are,  (a) 
points  on  competing  water-ways,  especialty  ocean  ports  and 
Great  Lakes  ports,  {h)  centres  at  which  numerous  competing 
railways  converge,  (c)  locations  within  influential  common- 
point  territory,  adjacent  to  the  pre^dously  mentioned  centres, 
and,  {d)  localities  so  influential  in  the  suppty  of  certain  products 
as  to  enjo3^  favorable  commodity  rates  on  those  articles. 

Natural  protection.  —  There  is,  of  course,  a  limit  to  the 
advantage  of  any  single  location.  As  distance  increases,  trans- 
portation expenses  form  an  increasing  natural  protection, 
insuring  to  a  distant  competitor  relative  advantage  in  his 
neighborhood.  It  has  been  found,  therefore,  that  in  the  sup- 
port of  national  distributive  campaigns  it  is  often  necessary 


46        ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

to  operate  a  series  of  plants,  locating  each  establishment  in 
such  a  way  that  it  will  command  the  trade  of  a  district.  To 
whatever  office  orders  may  be  sent,  they  can  then  be  filled  by 
the  plant  nearest  the  customer.  Cross  shipments  can  be 
avoided;  excess  stocks  can  be  shifted;  and  accidents  and 
other  interi-uptions  locahzed. 

The  local  market.  —  The  tendency  of  our  commercial  evolu- 
tion seems  to  be  to  break  down  the  distinction  between  a  man- 
ufacturing East  and  an  agricultural  West,  and  to  develop  m  each 
region  manufactming  and  jobbing  centres  for  the  supply  of 
the  territory  l>ing  about  them.  The  importance  of  intensive 
cultivation  of  local  territorv'  is,  therefore,  increasing. 

Estimates  of  population.  —  The  market  which  a  community 
affords  for  consumption-goods  depends  upon  the  population, 
its  wealth,  and  its  habits  of  life.  There  are  various  methods 
in  use  for  estimating  population  between  census  years. 

1.  The  rate  of  growth  between  the  last  two  census  periods 
can  be  calculated,  and  assumed  as  continuing  unchanged  since 
the  last  census.  This  is  a  verv'  unsafe  method,  as  will  be  seen 
when  it  is  obser\'ed  that  Detroit,  which  increased  77  per  cent 
between  1880  and  1890,  in  the  next  decade  increased  only  38.8 
per  cent,  but  in  the  decade  1900-1910  increased  63  per  cent. 
Chicago,  which  increased  118.6  per  cent  between  1880  and  1890, 
in  the  next  ten  yeai*s  gained  only  54.4  per  cent,  and  in  1900- 
1910  only  28.7  per  cent. 

2.  The  endeavor  is  sometimes  made  to  calculate  the  popula- 
tion from  the  number  of  votes  cast  at  elections.  The  chain 
of  relationships  here  involved  (using  percentages  based  on  the 
election  records  of  November  1900  for  all  cities  over  50,000  in 
population)  is: 

Percentage  of  males  in  the  total  population 50% 

Percentage  of  adult  males  in  the  male  population   60  % 

Percentage  of  citizens  in  the  adult  male  population 89  % 

Percentage  of  votes  cast  to  citizens 72  % 

Percentage  of  votes  to  total  population 19  % 


LOCATION  OF  AN  ESTABLISHMENT  47 

This  gives  a  ratio  of  one  vote  cast  for  every  five  inhabitants. 
The  method  is  unrehable,  however,  because  of  the  varying 
interest  in  elections. 

3.  Estimates  can  be  made  on  the  basis  of  the  names  in  the 
cit}^  director>^  The  ratios  vary  from  1:1.8  to  1:2.8,  with  an 
average  for  twenty  eight  large  cities  in  1900  of  1:2.31.  Uncer- 
tainty arises  from  the  fact  that  there  is  no  settled  practice  with 
reference  to  the  insertion  of  the  names  of  married  women,  and 
from  the  further  fact  that  the  age  at  which  the  names  of  young 
persons  are  admitted  varies  in  different  directories  from  sixteen 
to  twent3^-one  years. 

4.  The  population  of  school  age  msiy  be  used.  The  general 
ratio  is  approximately  one  school  child  to  3  J  persons  in  the 
total  population.  But  the  population  of  school  age  is  variously 
defined  in  different  places,  the  lower  age  limits  ranging  from 
four  to  eight  years  and  the  upper  ones  from  fourteen  to  twenty 
years.  The  dihgence  and  accuracy  of  boards  of  education  in 
census  taking  are,  of  course,  variable  factors. 

Tributary  territory.  —  The  extent  of  the  surrounding  region 
which  is  tributar}^  to  any  village  or  city  is  not  easily  determined. 
The  experience  of  travelhng  salesmen,  retail  merchants,  banks, 
and  railroad  ticket  agents  is  valuable,  but  difficult  to  collect. 
Rough  calculations  can,  of  course,  be  made  from  census  data, 
distributing  the  rural  and  village  population  between  competing 
points  on  the  assumption  that  the  attraction  of  rival  centres 
is  inversely  as  the  square  of  the  distance  and  directly  as  the 
size.  Accurate  mapping  of  tributary  territory  has  as  yet  been 
done  rarely  by  American  cities.  The  business  men  of  the  city 
of  Delevan,  Wis.,  have  determmed  the  limits  of  the  influence 
exerted  by  their  city,  by  an  actual  canvass.  A  reproduction 
of  the  map  resulting  from  then-  work  may  be  found  in  the 
World's  Work  for  February  1913,  page  468. 

A  somewhat  different  anatysis  of  tributary  territory  abandons 
the  map  method  of  presentation  and  tabulates  the  population 
accessible  at  given  freight  rates. 


48        ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

Style   movement.  —  It  is  not  natural  that  the  people  of  a 
community  should  purchase  style  goods  from  a  market  which 


Distance  in  Terms  of  Cost 


The  map  shows  the  cost  of  shipping  100  pounds  of  first  class  freight  from 
Chicago  to  various  destinations.  To  points  marked  1  the  freight  charge 
is  between  S0.40  and  SO.GO,  to  points  marked  3  it  is  between  S0.6o  and 
$0.85,  to  points  designated  by  ?  the  charge  is  between  S0.90  and  SI.  10, 
while  to  points   4  it  is  between  SI.  15  and  SI. 35. 

they  beheve  to  be  one  receiving  new  ideas  later  than  them- 
selves. The  law  of  style  movement  in  the  United  States  is 
that  a  new  idea  passes  from  east  to  west,  from  larger  cities  to 


LOCATION  OF  AN  ESTABLISHMENT 


49 


Freight  Rates  and  Tributary  Population 

The  following  statistics  compiled  by  the  Commercial  Club  of  Kansas  City, 
Mo.,  show  the  population  within  reach  of  certain  commercial  centers  of  the 
West,  at  specified  freight  rates. 


City 

Rate  in 

cents 

not  to 

exceed 

Population 

Rate  in 

cents 

not  to 

exceed 

Population 

Rate  in 

cents 

not  to 

exceed 

Population 

St.  Louis 

Kansas  City  . . . 

Omaha 

Memphis 

Dallas 

26.66 
27.56 
25.06 
24.56 

28.57 
20.82 

1,462,778 
1,227,077 
481,237 
258,940 
496,587 
280,188 

44.84 
45.75 
45.79 
44.14 
39.93 
30.11 

6,059,966 

3,971,522 

3,779,946  , 

939,825 

973,437 

348,837 

50.16 
56.50 
54.02 
53.76 
53.65 
52.45 

9,456,625 
8,143,225 

6,227,728 

2,889,674 

1,522,045 

556,696 

Denver 

smaller  ones,  and  from  neighborhoods  of  wealth  to  those  of 
less  wealth. 

City  measurements.  —  The  statistics  of  industry  have  now 
been  so  much  improved  that  persons  who  are  choosing  a  location 
for  a  plant  can  supplement  personal  observations  by  compre- 
hensive measurements,  in  many  cases.  With  reference  to  taxa- 
tion it  may  be  asked,  Does  the  per  capita  taxation  of  the  place 
under  investigation  vaiy  much  from  the  average  of  $12.02/ 
which  is  normal  for  cities  of  30,000  to  50,000  population,  or 
from  the  average  of  $13.56i  for  cities  of  100,000  to  300,000 
population,  or  from  $22.87,^  the  average  of  cities  of  over  half  a 
million  inhabitants?  What  is  perhaps  more  pertinent,  is  the 
question,  Is  the  rate  of  taxation  per  $1,000  of  assessed  valua- 
tion $15,  or  $20  (which  latter  figure  is  approximately  the  aver- 
age of  northern  cities),  or  is  it  $25  or  $30?  And,  further,  is 
the  assessed  valuation  100  per  cent  of  the  true  value,  or  25 
per  cent  or  50  per  cent  or  75  per  cent? 

Are  the  water  rates  10  cents  per  1,000  gallons  (which  is  a  fair 
average  rate),  or  are  they  3  cents  with  Philadelphia,  or  4  cents 

^  Statistics  of  1913.  See  Statistical  Abstract  of  the  United  States,  1914, 
pp.  560-563. 


50        ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

with  Cleveland,  or  25  cents  with  San  Francisco,  or  33 J  cents 
with  Tacoma? 

Is  gas  sold  at  the  usual  price  of  90  cents  i^er  thousand 
feet,  or  does  it  run  as  low  as  70  cents  in  emulation  of  Los 
Angeles,  or  as  high  as  81.40  to  equal  Spokane? 

Is  there  evidence  of  normal  growth  by  annual  building  activ- 
ities invoh-ing  a  per  capita  expencUture  of  S30.00,  or  is  there 
temporaiy  stagnation  such  as  Lowell,  ^lass.,  experienced  -^"ith 
but  S8.82  ^  invested,  or  a  boom  such  as  caiTied  Detroit's  outlaj^ 
up  to  S5S.53  ^ 

Is  the  city's  annual  fire  losses  at  about  the  American  1914 
average  for  cities  of  over  20.000  population,  namely,  S2.32  per 
capita;  or  do  these  losses  fall  under  $1.00.  so  that  the  locaUt}' 
is  one  of  the  65  honor  cities,  or  are  the^'  over  S5.00.  and  so  in  the 
class  of  the  30  worst  offenders  against  life  and  property? 

Finally,  do  the  bank  cleai-mgs  of  a  city  of  100,000  to  125,000 
population  average  $1 ,665-  per  capita,  or  are  they  low  ^-ith  Low- 
ell at  .S:353,-  or  high  ^-ith  Houston.  Tex.,  at  il.895-?  If  the 
cit}'  is  of  300.000  to  500.000  population  are  the  clearings  an 
average  figure  at  about  S2.952  -  per  capita,  or  are  they  down 
with  Washington,  D.  C,  at  $1,115,-  or  up  with  San  Francisco 
at  $5,673,-  iudicatiag  a  great  commercial  center? 

Other  statistics  which  are  worth  while  considering  are  bank 
deposits,  and  especially  sa^nngs  deposits,  as  an  index  of  the  well- 
being  and  thrift  of  wage-earners,  post  office  receipts,^  the  per- 
centage of  home  ownership,  whether  or  not  the  sexes  are  equally 
balanced,    and    the   death   rate.     President    Nicholas    ^lurray 

^  Statistics  of  1913  are  taken  as  more  normal  than  those  of  1914.  Statis- 
tical Abstract  of  the  United  States,  1914.  pp.  174-175. 

-  Statistics  of  1914.  The  averages  are  based  on  the  clearings  of  10  cities 
of  lOO.OOa-12.5,000  population,  and  on  the  clearings  of  10  cities  of  300,000- 
500,000  population. 

^  The  post  oflBce  receipts  of  15  cities,  chiefly  in  the  South  and  West,  and 
ranging  from  2.000  to  91,-500  population,  averaged  for  the  ten  months  end- 
ing September  1915,  the  stun  of  37  cents  p>er  capita  per  month.  The  range 
was  from  10.5  cents  in  FaU  River,  Mass.,  to  SI. 8  cents  in  Dallas,  Tex. 


LOCATION  OF  AN  ESTABLISHMENT  51 

Butler  has  said,  "  Where  the  pubHc  school  term  in  the  United 
States  is  longest,  there  the  average  productive  capacity  of  the 
citizen  is  greatest."  The  percentage  of  children  of  school  age 
who  are  actually  in  school  is  important  as  it  is  an  e\ddence  of  the 
quahty  of  the  labor  force  which  is  in  preparation  for  to-morrow. 
The  severest  test  of  the  school  system  is  the  percentage  of  the 
children  of  foreign-born  parents  who  are  in  school.  The  Census 
of  1910  indicates  that  under  good  conditions  approximately 
90  per  cent  of  such  children,  from  6  to  14  j^ears  of  age,  should  be 
enrolled  in  school.  Some  of  the  honor  cities  are  New  Haven, 
Conn.,  Cambridge,  Mass.,  Denver,  Colo.,  and  Boston,  Mass. 
Bad  conditions  exist  where  less  than  80  per  cent  are  in  school. 
Some  cities  \sdth  poor  records  are  New  Orleans,  La.,  Scranton, 
Pa.,  Baltimore,  Md.,  and  ^Memphis,  Tenn. 

Factory  sites.  —  The  exact  location  of  a  factory  involves  the 
consideration  of  a  class  of  real  estate  for  which  the  standards  of 
value  are  not  as  definitely  fixed  as  they  are  for  mercantile  or 
residence  property.  The  erratic  fluctuation  of  the  prices  of 
manufacturing  sites  is  due  partly  to  the  fact  that  the  market  is 
not  active,  and  that  the  property  involved  is  commonly  located 
on  the  outskirts  of  cities  where  speculative  prospects  determine 
values,  rather  than  the  capitalization  of  current  income-produc- 
ing power.  The  price  of  speculative  property  varies  with  the 
vividness  of  the  imagination  of  the  holder,  and  with  the  state 
of  local  excitement  created  b}?-  recent  transactions.  Another 
reason  for  the  uncertainty  of  values  is  that  a  wide  variety  of 
real  estate  conditions  is  involved,  ranging  from  central-district 
property,  m  plotted  areas,  on  paved  streets,  with  trackage 
facihties,  and  enjoying  fire,  water,  and  pohce  services,  to  distant 
swamp  land,  dealt  in  on  an  acreage  basis,  and  suited  for  httle 
else  than  the  dumping  of  manufacturing  wastes.  This  variety 
interferes  with  the  defining  of  types  and  the  calculation  of 
characteristic  values. 

In  a  general  wa}^  manufacturing  sites  in  cities  of  from  20,000 
to  100,000  population  are  worth  from  $500  to  $2,000  per  acre, 


52        ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

without  trackage,  and  from  Sl.CMX)  to  $25,000  per  acre  with 
trackage. 

The  larger  the  size  of  a  city  the  more  stable  the  price  of  any 
given  class  of  manufacturing  sites  becomes,  and  the  more  eas\^  it 
is,  therefore,  to  borrow  money  on  such  real  estate.  The  off-set- 
ting advantage  of  country-  location  is  that  lower  prices  per  square 
foot  allow  the  works  to  be  spread  out  so  that  the  fire  hazard  is 
reduce<:l.  and  a  free  use  of  one-storv  structures  can  be  made. 

The  location  of  retail  establishments.  —  The  location  of 
mercantile  establishments  in  a  city  is  primaiily  based  upon  the 
fact  that  the  central  point  of  a  settled  area  (uneven  topography 
aside)  is  the  point  most  accessible  to  customers.  If  the 
existing  retail  center  is  not  near  this  point,  that  is  to  say.  if 
the  city  has  been  growing  more  rapidly  in  some  directions  than 
in  others,  the  retail  district  will  be  foimd  to  be  in  a  slow  process 
of  travel  toward  the  centre  of  population,  inferior  stores,  small 
repair  shops,  and  abandoned  buildings  marking  the  off-side, 
while  new  specialty  shopvs  mark  the  approach  toward  the  main 
residence  district.  Within  the  shopping  district  the  imiversal 
p^o^riders,  such  as  the  department  stores,  and  the  better  man- 
aged institutions  which  are  able  to  utihze  high  densities  of  traffic 
to  best  advantage,  will  be  foimd  occupj-ing  the  best  central  loca- 
tions, while  single-line  shops  of  narrow  appeal,  and  the  less 
efficiently  managed  stores  wiQ  occupy  the  side  streets  and  the 
outskirts  of  the  shopping  district. 

Within  the  shopping  district  a  store  will  seek  the  neighbor- 
hood of  stores  of  its  kind,  or  stores  which  appeal  to  the  same 
class  of  customers.  The  habit  of  the  customer,  when  bent 
upon  a  particular  errand,  is  first  of  all  to  place  himself  or  her- 
seff  in  the  quarter  where  there  is  the  best  combined  assortment 
within  a  street  frontage  of  a  few  hundred  feet.  The  customer 
will  then  shop  around  from  store  to  store,  only  going  to  outly- 
ing stores  after  the  stocks  of  the  chief  group  have  been  exam- 
ined. Most  shopping  streets,  especially  in  medium-sized  and 
small  cities,  wiU  be  found  to  have  one  side  devoted  to  women's 


LOCATION  OF  AN  ESTABLISHMENT  53 

trade  and  occupied  by  dry  goods  stores,  jewelry  stores,  furniture 
stores,  and  the  like;  while  the  opposite  side  of  the  street  w^ill 
have  the  hardware  stores,  saloons,  and  cheaper  restaurants. 
There  is  a  sHght  tendency  for  the  woman's  tradmg  center  to 
be  on  the  south  side  of  an  east  and  west  street,  to  secure  the 
advantage  of  shade.  There  is  also  a  sUght  tendency  for  this 
center  to  occupy  the  side  of  the  main  street  which  hes  nearer  to 
the  best  residence  district.  Mercantile  values  are  injuriously 
affected  by  vacancies,  buildings  in  course  of  construction,  and 
by  non-mercantile  buildings,  such  as  a  church  or  court  house. 
They  are  also  injuriously  affected  b}^  slopes  vrhich  materially 
increase  the  effort  of  movement  on  foot  or  in  vehicles. 

When  a  city  reaches  such  size  that  a  couple  of  hundred  fam- 
ilies hve  at  a  distance  of  approximately  a  half  mile  from  the 
chief  shopping  center,  there  is  likely  to  be  formed  a  neighbor- 
hood-convenience sub-centre,  consisting  of  a  grocery  store,  a 
meat  shop,  a  saloon,  and  a  drug  store  in  w^hich  the  sale  of  soda, 
cigars,  and  magazmes  and  newspapers  helps  out  the  prescrip- 
tion trade.  With  the  continuance  of  growth,  such  sub-centres 
tend  to  arrange  themselves  at  half-mile  intervals  on  the  chief 
lines  of  radial  travel. 

Local  inducements.  —  To  return  to  the  question  of  the  loca- 
tion of  manufacturing  institutions,  the  usual  forms  of  induce- 
ment offered  by  cities  to  new  enterprises  looking  for  a  location 
are,  free  sites,  subscriptions  to  stock,  loans  on  easy  terms, 
exemption  from  taxation  for  a  period  of  years,  and  general 
assistance  in  learning  the  resources  of  the  locahty  and  in  making 
business  connections.  The  best  opinion  is  strongly  against 
tax  exemptions  or  outright  gifts  in  any  form. 

In  some  aggressive  cities  the  boards  of  trade  or  chambers  of 
commerce  are  experimenting  with  the  policy  of  aiding  new  con- 
cerns by  means  of  specially  organized  fostering  corporations, 
which  do  not  aim  at  private  profit,  but  at  the  general  upbuilding 
of  the  neighborhood.  In  one  locality  effort  msiy  take  the  form 
of  a  Loan  Corporation  organized  by  citizens  with  the  object 


54        ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

of  loaning  funds  to  new  enterprises  approved  by  the  local  com- 
mercial association,  sufficient  interest  being  charged  to  pay 
expenses  and  even,  perhaps,  yield  a  small  dividend.  In  another 
place  the  enterprise  may  be  a  Holding  Company  which  will 
invest  not  over  a  given  maximum  sum  in  the  bonds  or  stocks  of 
an  approved  new  concern.  Still  another  form  of  fostering 
corporation  is  a  Real  Estate  Development  Company  which 
stands  read}^  to  purchase  a  site  and  build  structures  for  parties 
approved  by  the  commercial  association,  either  renting  the 
properties  or  selling  them  on  easy  instalments. 

Credit  guarantee  funds.  —  Several  cities  have  been  helping 
new  concerns  by  means  of  a  credit  guarantee  fund  estabhshed 
by  the  subscriptions  of  citizens.  Under  this  plan  no  money  is 
called  for.  The  subscriptions  are  simply  guarantees.  The 
subscribers  appoint  trustees  or  attorneys-in-fact  to  represent 
them,  empowering  these  trustees  to  obligate  them  to  the  extent 
of  their  subscriptions.  An  apphcant  deals  with  an  investigating 
committee  of  the  local  commercial  association.  If  this  com- 
mittee reports  favorably,  it  recommends  to  the  trustees  a  defi- 
nite loan  of  credit.  Should  the  trustees  approve,  the  borrower 
makes  out  his  notes,  receives  the  endorsement  of  the  trustees 
upon  them,  and  on  this  collateral  secures  a  loan  from  a  desig- 
nated bank.  Interest  is  charged,  and  the  rate  may  even  be 
fixed  one  or  two  per  cent  above  the  current  rate  to  cover  costs 
and  provide  a  contingent  fund.  The  period  of  the  loans  may 
range  from  five  to  ten  years.  In  case  the  loans  are  paid,  the 
subscribers  to  the  fund  are  not  called  upon.  But  if  there  is 
default,  the  subscribers  must  pay  pro  rata  according  to  the 
amount  of  their  subscriptions.  Subscriptions  are  for  a  defi- 
nite period.  Copies  of  the  subscription,  of  the  power  of  at- 
torney, and  of  the  essential  contracts  must  be  filed  with  each 
bank  making  loans.  The  plan  is  intended  to  aid  only  in  the 
initial  financing  of  young  concerns.  With  various  modifications 
of  detail  this  idea  has  been  used  at  Worcester,  Mass.,  Williams- 
port,  Pa.,  Jackson,  Mich.,  and  Peoria,  111. 


LOCATION  OF  AN  ESTABLISHMENT  55 

Mr.  W.  S.  Milliner,  Secretary-Manager  of  the  Williamsport 
Board  of  Trade  says,  in  a  letter  to  me,  that  the  guarantee  plan 
was  abandoned  there  in  June  1914,  after  continuing  for  about 
fourteen  years.  The  management  of  the  fund  was  very  con- 
servative, the  attorneys-in-fact  taking  mortgages  upon  some 
property  of  the  borrower  whenever  endorsing  notes.  The 
losses  were  so  small  that  they  were,  in  each  case,  met  by  the 
directors  of  the  Board  of  Trade  and  by  prominent  and  wealthy 
citizens,  so  that  a  general  assessment  on  the  guarantors  was 
never  made.  In  practice,  it  was  found  that  the  credit  of  a 
borrowing  concern  was  materially  injured,  so  that  it  was  diffi- 
cult for  that  concern  to  secure  further  accommodations,  except 
with  the  same  kind  of  security.  It  is  the  judgment  of  those 
connected  with  the  plan  in  Williamsport  that  the  chief  advan- 
tage resulting  from  it  was  the  attention  attracted  to  the  city, 
and  the  inquiries  brought  from  industries  seeking  a  new  loca- 
tion, rather  than  anything  which  resulted  from  the  actual 
operation  of  the  plan  after  the  industries  had  been  attracted. 
'*It  is  doubtful,"  concludes  Mr.  Milliner,  "if  any  plan  of  this 
sort,  or  any  modification  of  it,  will  secure  for  a  city  industries 
which  are  really  worth  while,  that  could  not  be  secured  through 
established  and  Hberal  banking  circles,  together  with  the  aid 
of  pubfic  spirited  citizens  able  to  become  investors  in  a  worthy 
industry." 

BIBLIOGRAPHY 

The  Localization  of  Industries,  Twelfth  Census,  1900,  Vol.  VII,  Manu- 
factures, Part  I,  pp.  cxc-ccxiv. 

Reports  on  cities  made  by  the  National  Board  of  Fire  Underwriters  of  135 
William  St.,  New  York  City.  These  reports,  now  available  for  the 
larger  cities  of  this  country,  contain  information  on  topography,  tem- 
perature, population,  growth,  taxes,  principal  industries,  fuel  used, 
fire  hazard,  fire  record,  and  fire-fighting  facilities.  They  include  large 
and  accurate  maps. 

Sherman,  P.  T.:  A  Study  of  the  Causes  of  Congestion  of  Manufactures 
in  New  York  City,  Bulletin  of  N.  Y.  Bureau  of  Labor,  Sept.  1908, 
pp.  303-323. 


56        ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

Methods  of  Estimating  Population,  Twelfth  Census,  Special  Report,  Sup- 
plementary Analysis,  1900,  pp.  580-594. 

Burnette,  H.  L.:  Location  of  a  Factory  Plant,  System,  March  1905,  pp. 
262-272. 

Duncan,  John  C:  The  Principles  of  Industrial  Management,  N.  Y.,  1911. 
Ch.  Ill,  Theory  of  Plant  Location,  Ch.  IV,  The  Ideal  Situation. 

Diemer,  H.:  Factory  Organization  and  Administration,  N.  Y.,  1910.  Ch.  I, 
The  Economic  Theory  of  Factory  Location. 

Scott,  Albert:  The  Selection  of  Mill  Sites.  Trans,  of  Nat'l  Asso.  of  Cotton 
Mfrs.,  1912.  Also  pubUshed  in  Indu.strial  Engineering,  Oct.  1912, 
pp.  158-160. 

Hurd,  Rich.  M.:  Principles  of  City  Land  Values,  3d  Ed.,  N.  Y.,  1911. 

Bureau  of  Statistics,  Department  of  Commerce  and  Labor,  The  Statis- 
tical Abstract  of  the  United  States,  Washington,  D.  C.  Issued 
annually.  Contains  statistics  of  municipal  population,  building  con- 
struction, bank  clearings,  etc. 


CHAPTER  IV 
LAYOUT  OF  A  MANUFACTURING  PLANT 

The  problem.  —  The  plannmg  of  an  industrial  works  is  much 
like  the  plamiing  of  a  farm,  or  a  garden,  or  a  residence,  or  even 
a  kitchen,  —  for  a  kitchen  is  a  workshop.  It  has  points  of 
sunilarity  with  the  planning  of  a  city.  In  each  of  these  cases 
there  are  certain  functions  to  be  provided  with  space  require- 
ments, which  functions  must  sustain  definite  relations  of  area 
and  direction  with  each  other.  The  functions  of  an  establish- 
ment, of  course,  vary  greatly  in  individual  significance.  They 
vary  also  in  the  degree  of  handicap  they  will  suffer  from  lack  of 
adequate  space  and  position.  The  problem  of  layout  is  to  dis- 
cover such  an  arrangement  as  will  secure  the  greatest  con- 
venience for  the  most  important  functions.  To  state  this  a  little 
more  accurately,  we  may  say  that  the  optimum  plan  is  the  one 
in  which  a  series  of  quantities  representing  the  importance  of 
the  various  functions,  multipHed  by  quantities  representing  the 
advantage  secured  for  those  functions  by  space  and  location 
will  amount  to  the  greatest  possible  sum. 

Layout  and  administration.  —  A  proper  plan  conforms  to 
economy  by  insurmg  complete  utilization  of  buildings  and 
grounds,  and  by  facilitating  the  movement  of  material  from 
process  to  process;  but  it  avoids  the  parsimony  of  condensing 
things  to  such  an  extent  as  to  produce  a  cluttered  shop  with  its 
impeded  movements  and  its  perpetual  rearrangements  to  make 
room.  It  is  a  great  merit  of  a  plan  if  it  facilitates  the  judgment 
of  the  state  of  affairs  in  each  shop  by  the  mere  observation  of 
the  locations  of  things.     A  confused  advance  of  materials  per- 

57 


58        ADMIMSTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

mits  soldiering,  for  it  interferes  with  the  indi^ddualization  of 
work.  It  is  a  cardinal  point  of  policy  in  •'drive  management'' 
to  secure  straight-line  sequences,  so  that  an  undue  accumula- 
tion of  material  at  any  point  can  be  taken  as  the  sign  of  inad- 
equate performance.  A  clear  progression  of  work  is  essential 
in  any  management  which  aims  at  a  definite  time  schedule,  for 
it  is  only  by  the  movement  of  definite  quantities  of  work  in 
definite  periods  of  time  that  the  capacity  of  individual  produc- 
tion centres  can  be  measured,  and  such  capacity  be  held  to 
specific  performance. 

The  given  factors.  —  The  points  which  are  most  likely  to  be 
decided  upon  before  serious  work  on  the  layout  of  a  plant  is 
begun  are,  that  a  given  sum  of  money  can  be  devoted  to  the 
enterprise,  that  a  certain  piece  of  land  is  to  be  used,  and  that  a 
given  output  is  to  be  pro^'ided  for.  From  these  determinations 
the  number  and  size  and  character  of  the  processes  can  be 
deduced,  and  a  general  estimate  l3e  made  of  the  requirements 
in  the  way  of  men,  machines,  power,  buildings,  and  ground 
area.  The  layout  then  involves  the  exact  determination  of 
the  space  relations  of  the  various  production  centres.  Its 
completed  conception  is  of  a  huge  mechanical  leviathan  or 
automaton  of  a  certain  length,  breadth,  and  height.  The  last 
step  in  planning  is  to  cover  the  whole  with  a  shell  of  appropriate 
buildings. 

The  analysis  of  a  production  centre.  —  The  determination  of 
the  layout  of  a  works  includes  the  location  of  the  indi\'idual 
productive  imits  within  each  shop  or  department,  and  the 
grouping  of  the  departments  to  compose  a  complete  plant. 
The  first  step  is  then  the  analysis  of  production  centres.  How 
does  the  space  di^'ide  itself  in  a  single  centre,  composed  of  a 
workman  who  stands  in  front  of  a  section  of  wall  bench,  or 
composed  of  a  machinist  at  his  machine  surroimded  by  aisle 
spaces  and  piles  of  materials?  What  space  is  necessarj-  on 
the  four  sides  of  a  certain  type  of  machine,  to  permit  access 
for  adjustment?     What  aisle  width  is  necessar}'  between  ma- 


LAYOUT  OF  A  MANUFACTURING  PLANT 


59 


chine  rows?  What  should  be  the  width  of  main  aisles?  What 
floor  area  is  needed  to  pile  a  given  amount  of  certain  mate- 
rials? What  is  the  proper  width  for  work  benches?  It  will 
facihtate  matters  to  make  a  number  of  standard  space  deter- 
minations for  such  elements  as  occur  again  and  again.  The 
total  space  requirement  of  any  production  centre  can  then  be 
arrived  at  by  allowing  for  all  the  standards  involved  in  it,  and 
addmg  space  for  any  special  requirements.  In  this  way  analysis 
of  areas  may  proceed  from  one  process  to  another,  covering  in 
the  end  not  only  the  requirements  of  manufacturing  depart- 
ments, but  of  the  warehouses,  offices,  and  yards. 

Sequences.  —  A  different  problem  of  layout  is  to  determine 
the  relations  of  production  centres  with  reference  to  the  sequence 
of  processes  and  the  movement  of  materials  from  step  to  step 
in  manufacture.  Some  industries  comprise  a  single  simple  chain 
of  performances  which  may  be  represented  thus: 


I  j'  I  I         I 

1        2        3        4 


Fig.  3.    Simple  Sequence 

The  material  moves  straight  on,  as  in  a  paper  mill,  from  one 
process  to  another,  until  the  end  is  reached.  Other  industries 
involve  a  number  of  separate  sequences  which  move  along  in 
parallel  series. 


1        2        3        4 

1        2        3        4 


Fig.  4.    Parallel  Sequence 

Still   other  industries,   such   for  example   as   slaughtering   and 
meat  packing,  consist  of  the  repeated  subdivision  and  elabora- 


60        ADMIXISTRATIOX  OF  INDUSTRIAL  ENTERPRISES 


tion  of  a  complex  raw  material,  until  it  is  dilterentiated  into  a 
large  number  of  separate  commercial  products. 


1 —       ° 
3         4        — 

L        6 


Fig.  5.     El-^borative  Sequence 

One  of  the  commonest  manufacturing  processes  involves  the 
manufacture  of  parts  which  ma}'  individualh'  run  through 
longer  or  shorter  series  of  simple  sequences,  to  be  then  grouped 
into  minor  assemblies,  which  m  a  final  sjmthesis  take  their 
places  in  a  complex  completed  product. 

The  simpler  the  sequences  the  straighter  can  be  the  line  of  for- 
ward movement,  and  the  freer  it  can  be  from  detours  and  re- 
verses and  complex  doublings.  Straight-line  movements  have 
the  advantage  of  speed,  minmium  trucking  expense,  compact  lay- 
out, close  supendsion,  minimum  of  noise  and  dust,  and  minimum 
distraction  of  attention  from  work  b}'  journeymgs  to  and  fro. 

Coordination.  —  In  order  that  all  parts  of  an  estabhshment 
may  be  kept  full  of  work  and  under  even  pressure  (a  condition 
essential  to  the  development  of  a  uniform  habit  of  the  shop), 
it  is  necessaiy  that  each  class  of  production  centre  should  coor- 
dinate in  capacity  with  those  centres  which  precede  it  or  follow 
it,  and  which  must  therefore  either  supply  it  with  work  or  take 


LAYOUT  OF  A  MANUFACTURING  PLANT 


61 


1        2        3 

I  I  I  L ^ 

3 


Fig.  6.    Assembly  Sequence 

work  from  it.  If  we  imagine  a  manufacturing  process  consist- 
ing of  three  stages,  designated  as  ^,  B,  C,  and  diagramatically 
represented  as  follows: 


500 


200 


600 


1000 


200 


200 


200 


200 


Fig.  7.   DiAGKAM  OF  Coordination 


62        ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

it  will  be  obvious  that  two  machines  of  500  capacit}^  for  A  \sill 
fully  emplo}^  a  machine  of  1,000  capacity  for  B,  and  five  machines 
of  200  capacity  for  C.  If  we  install  a  B  machine  of  1,300,  in 
the  best  adjustment  possible  we  shall  either  lose  200  on  A  equip- 
ment and  100  on  the  C,  or  else  lose  the  300  extra  capacity  in 
the  new  B  machine.  If  a  5  machine  of  1,400  capacity  be 
installed,  we  shall  lose  100  on  A,  in  the  best  possible  adjust- 
ment. Not  until  we  equip  all  the  processes  for  2,000  can  we 
again  obtain  as  good  a  correlation  as  was  had  at  1,000.  A  rule 
of  perfect  coordination  is  that  the  total  capacity  of  a  series  of 
connected  manufacturing  departments  should  be  some  common 
multiple  of  the  capacities  of  the  individual  production  centres 
composmg  those  departments. 

Transportation.  —  In  internal  transportation  the  complete 
journey  is  from  tool  point  to  tool  point.  The  ideal  in  handling- 
economics  is  to  have  the  final  position  of  a  piece  of  work,  at 
the  conclusion  of  an  operation,  serve  as  the  initial  position  for 
the  next  operation.  As  such  a  condition  is  rarety  attainable,  the 
general  ideal  should  be  to  reduce  journey's  between  tools,  as 
far  as  possible,  to  three  parts:  (a),  a  single  short  detail  hand- 
ling from  tool  to  container,  (6),  a  transfer  trip  of  a  quantity  of 
products  from  the  receiving  position  to  the  dehvery  position,  in 
an  easily  propelled  container,  (c),  a  short  detail  handling  from 
the  container  to  the  next  tool.  The  costly  elements  in  these 
journeys  are  the  handhngs,  and  especially  the  vertical  ones. 
When  the  trunk  of  a  workman's  body  must  be  bent  for  each 
piece,  the  efficiency  of  the  energy  expended  is  probably  a  small 
decimal.  The  aim  should  be  to  keep  aU  handlings  as  short  as 
possible,  and  keep  them  in  the  same  vertical  plane.  A  few 
vertical  planes  should  be  estabhshed  for  work  throughout  a 
shop;  and  change  from  one  plane  to  another  should  be  made 
in  large  lots  b}^  means  of  appropriate  mechanical  apparatus, 
such  as  elevating  trucks  or  tiering  machines. 

The  shop  unit. — On  the  basis  of  the  know^n  space  requirements 
of  production  centres,  and  the  sequence  of  processes,  and  taking 


LAYOUT  OF  A  MANUFACTURING  PLANT  63 

into  due  account  the  laws  of  coordination  and  transportation, 
a  process-area-diagram  can  be  constructed.  But  before  the 
centres  are  grouped  into  shops,  it  is  necessary  to  ascertain  the 
requirements  of  each  process  as  to  Hght,  shafting  connections, 
headroom,  crane  serv^ice,  special  foundations,  and  the  relations 
which  are  to  be  sustained  with  every  type  of  administrative 
and  service  department,  so  that  in  the  final  adjustment  these 
needs  will  receive  consideration.  It  is  also  necessary,  in  laying 
out  the  plans  for  a  shop,  to  allow* space  for  the  foreman's  office, 
for  stairways  and  beltways,  and  intermediate  storage  spaces 
and  toilet  rooms. 

Arrangement  according  to  sequence  versus  arrangement 
according  to  type  of  work.  —  A  problem  arises,  in  organizing  a 
series  of  shops,  as  to  the  proper  location  for  work  of  a  given 
kind,  which  occurs  again  and  again  at  different  stages  in  the 
process  of  manufacture.  Should  such  w^ork  be  done  at  the 
various  points  w^here  it  occurs  in  the  regular  line  of  advance, 
with  the  necessity,  perhaps,  of  installing  the  same  kind  of 
machine  in  two  or  three  shops?  Or  should  all  w^ork  of  a  kind  be 
done  in  one  place,  even  though  it  be  necessary  to  shift  materials 
back  and  forth?  If  the  first  plan  is  followed,  as  is  the  tendency 
in  mass  production  —  the  dominant  thing  wdll  be  a  straight- 
forward progression.  If  the  second  plan  is  followed,  —  as  usu- 
ally happens  in  specialty  manufacturing  —  the  controlling 
motive  will  be  to  secure  the  advantage  of  massing  all  of  one 
kind  of  machinery,  labor  skill,  and  administrative  experience 
in  one  place.  The  usual  solution  of  this  problem  is  a  compro- 
mise, w^hich  may  be  defined  briefly  as  straight-line  movement 
of  materials  when  they  are  handled  in  quantity,  while  at  the  same 
time  expensive  units  of  equipment  are  kept  in  operation  as 
steadily  as  possible. 

Arrangement  of  shops  to  compose  a  plant.  —  The  elements 
of  which  manufacturing  establishments  are  composed  may  be 
listed  as,  1,  Raw-material  storage  and  finished-product  storage. 
2,  Intermediate  storage.     3,  Manufacturing  centers.     4,  Assem- 


64        ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

bling  rooms  and  erecting  floors.  5,  Tool  rooms.  6,  Stairways, 
beltways,  elevators,  and  halls.  7,  Toilets,  lockers,  and  rest 
rooms.  8,  Drafting  room.  9,  Planning  room.  10,  General 
offices.     11,  Power  plant.     12,  Yard  departments. 

Service  centres.  —  It  is  profitable  to  group  certain  of*  the  ser- 
\ace  departments,  the  sanitary  accommodations,  and  the  spaces 
reserved  for  transportation  and  communication,  in  the  form 
of  narrow  bands  between  the  shops,  and  enclosed  between  fire- 


^ — 

HI^BQ      I^^I 

_. 

■■■IIIIIIIIIIUH 

IsTORAsJ 

LAVATORY 

||NFLAM-| 

Imasiis 

■             c 

'  ■,  1 

Fig.  8.  Plan  showing  the  grouping  of  service  centers  between  fire-proof 
walls,  separating  two  shops.  All  doorways  protected  by  self-closing,  fire- 
proof doors,     ►j*  =  fire  plug. 


proof  walls.  By  this  arrangement  the  shop  areas  are  broken 
up  as  little  as  possible,  building  space  is  economized,  lighting 
is  improved,  and  tlie  hazard  of  fire  is  decreased.  An  illustra- 
tion of  such  a  grouping  is  Figure  8. 

A  similar  plan,  including  beltways,  is  recommended  by  the 
Boston  ^lanufacturers'  Mutual  Fire  Insurance  Company.  See 
Figure  9. 

Segregation.  —  Since  a  group  of  associated  departments 
will  suffer  from  noise  according  to  the  noisiest  one,  and  will  take 
the  insurance  rate  of  the  most  hazardous  one,  there  is  economy 
in  sorting  out  departments  so  that  birds  of  a  feather  will  flock 
together.     There  will  be  some  incidental  segregation  if  a  plant 


LAYOUT  OF  A  MANUFACTURING  PLANT 


65 


is  so  arranged  that  the  receipt  of  raw  material,  together  with 
the  power  plant,  and  the  hea\y  manufacturing  processes  — 
usually  the  preliminary 
ones  — are  grouped  around 
the  receiving  switch;  while 
at  the  other  end  of  the 
main  axis  of  the  grounds, 
to  the  windward,  and  near 
the  shipping  switch,  are 
located  the  finishing  proc- 
esses, the  finished  stores, 
and  the  general  offices. 
Prudence  will,  of  course, 
suggest  the  emphatic  seg- 
regation of  dangerous  ele- 
ments, such  as  gasoline 
storage  and  high-tension 
transfoimers,  and  of  noisy 
and  dusty  processes  like 
those  of  the  foundiy  and 
forge. 

Yard  departments. — 
A  factory  yard  should  be 
looked  upon  as  a  group  of 
unroofed  departments,  to- 
gether with  spaces  reserved 
for  future  growi;h.  Gen- 
erous room  for  storage  per- 
mits bujdng  in  large  lots. 
It  facilitates  mechanical 
handling,  by  allowing  stor- 
age spaces  to  be  laid  out  as 
a  series  of  parallelograms, 
within  reach  of  track  cranes.  And  it  reduces  to  a  minimum 
the  handling  w^hich  is  incident  to  rearrangement. 


BOILER  HOUSE  I 

Fig.  9.  An  arrangement  of  beltway,  ele- 
vator, and  stairway  recommended  by  the 
Boston  ^Manufacturers'  Mutual  Fire  In- 
surance Co. 


66        ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

In  laying  out  standard  railway  tracks  a  minimum  radius  for 
short  arcs  is  100  feet,  for  longer  arcs  150  to  200  feet.  It  is 
desirable  to  arrange  easy  curA^es,  to  separate  receiving  from 
shipping  switches,  and  to  tie  the  crane  service  and  the  industrial 
railway  service  together  by  judicious  interlacing.  But  it  is 
wise,  also,  to  avoid  running  railway  tracks  through  buildings; 
and  to  avoid  arranging  the  walks  and  roads  which  must  be 
followed  by  workmen  in  such  a  manner  that  tracks  must  be 
crossed  near  doorways  or  near  the  corners  of  buildings. 

Enlargement.  —  It  is  always  a  nice  question  to  what  extent 
present  economy  should  be  sacrificed  in  order  to  build  on  a  plan 
which  will  permit  of  economical  future  enlargements.  And  it 
is  also  an  uncertain  matter  in  what  proportion  space  for  enlarge- 
ment should  be  distributed  between  the  various  departments. 
Questions  concerning  enlargement  are  the  more  easy  of  answer 
in  the  measure  that  an  establishment  is  built  upon  cheap  ground, 
or  that  it  is  large  in  size  to  begin  with,  or  that  it  has  to  do  with  a 
branch  of  industry  Little  subject  to  revolutionary  changes  in 
method.  Again,  enlargement  is  simple  when  growth  means 
the  duplication  of  certain  distinct  units  rather  than  a  funda- 
mental reorganization  of  the  entire  plant. 

Preservation  of  market  values.  —  If  a  plant  is  constructed 
in  a  large  citj^,  where  the  sale  of  manufactming  buildings  is 
possible,  and  where  the  shifting  of  population  causes  frequent 
changes  in  the  functions  of  localities,  consideration  should 
be  given  to  the  presentation  of  the  real  estate  values  or  sale 
values  by  building  structures  which  can  be  adapted  to  a  variety 
of  uses  with  a  minimum  of  remodehng.  What  this  implies 
in  the  way  of  design  maj^  be  ascertained  by  the  study  of 
the  loft  buildings  now  being  constructed  for  leasing  purposes 
in  large  cities.  As  country  or  suburban  plants  are  usually 
salable  or  rentable  only  at  a  great  sacrifice,  it  is  probably 
wise  to  give  them  the  most  perfect  possible  adaptation  to 
the  primary  purpose,  and  stake  everything  on  the  original 
venture. 


LAYOUT  OF  A  MANUFACTURING  PLANT 


67 


Ground  plans.  —  The  I  plan :    The  simplest  type  of  manu- 
facturing plant  is  a  single  building  of  a  width  consistent  with 


RR 


Fig.  10.    I  Plan 


R.  S.  =  Raw  material  stores, 

F.  S.  =  Finished  stock. 

M  1,  2,  3,  4  =  Manufacturing  departments  in  order  of  sequence. 

R.  R.  =  Railroad  siding, 

efficient  lighting,  and  of  a  length  depending  upon  the  floor 
space  to  be  provided.  Such  a  plan  may  be  illustrated,  in 
abstract  form,  by  Figure  10. 


R 


M 


M 


1 

■     ■ 


RR 


Fig.  11.     L  Plan 


L  and  U  plans.  —  The  enlargement  of  an  I  plan  is  likeh^  at 
first,  to  produce  some  sort  of  an  L  or  U  plan,  from  the  necessity 
of  turning  to  avoid  property  limits. 


68        ADMIMSTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

Accretionary  plans.  —  Funher  enlargements  are  then  apt  to 
give  evidence  of  the  breakdown  of  the  plan,  and  to  produce 


i 

1 


R  U   S 


*T 


M 
i 


M 


RR 


J^ 


M 


Fk.  12.     U  Pl-vx 


^  F 


o^ 


M    - 
4     • 


the  confusion  of  an  accretionaiy  facton'  t^-pe.  Continued 
enlargements  rapidly  lower  the  efficiency  of  such  a  plan;  while 
radical  enlargements  mean  a  clean  sweep. 

1 


iTJh 


Fig.  13.    Accretionary  Flas 


LAYOUT  OF  A   MANUFACTURING  PLANT 


69 


Duplicate  I  plans.  —  An  I  plan  may,  of  course,  consist  of 
several  buildings. 


R 


M 


M 


M 


M 


M 


RR 


^^-y 


ASSEMBLY 


Fig.  14.    Duplicate  I  Plan 


Quadrilaterals.  —  The  enlargement  of  a  duplicate  I  plan 
ma}^  produce  a  quadrilateral,  when  connecting  structures  are 
thrown  across  between  the  original  buildings. 


Fig.  15.    Quadrilateral  Plan 


70        ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

This  plan  was  in  favor  in  this  country,  for  a  few  years,  in  the 
seventies  and  eighties.  It  was  even  made  the  object  of  original 
construction,  because  of  indoor  communication,  and  in  spite 
of  the  obvious  disadvantages  in  the  way  of  inaccessible  courts, 
a  bad  fire  risk,  and  vaiying  light.  A  modification  of  this  idea, 
standing  part  way  between  the  duplicate  I  and  the  quadrilateral 
plans,  but  without  some  of  the  disadvantages  of  the  latter,  is 
to  employ  a  series  of  parallel  main  buildings,  and  to  connect 
them  with  passageways  devoted  to  service  departments.  The 
plant  of  the  United  Shoe  Machinery  Company  at  Beverly, 
Massachusetts,  has  the  following  general  ground  plan: 


Fig.  16. 

Ground  plan  of  the  factory  of  the  United  Shoe  Machinery  Co.,  of  Beverly, 
Mass.,  showdng  service  centers.^  S  =  Service  center  including  locker 
room,  wash  room,  tool  storage  and  delivery  room,  stairway,  and  con- 
necting passage  between  buildings.  V  =  Ventilating  fans.  H  =  Emergency 
and  first  aid  hospital. 

Enlargements  as  lateral  extensions.  —  To  provide  a  plan 
which  will  be  from  the  start  reasonably  compact,  but  will  per- 
mit of  the  independent  enlargement  of  any  of  its  parts  without 
destruction  of  the  original  scheme,  it  is  necessarj^  to  house  the 
departments  in  separate  buildings,  and  to  provide  that  the 

1  L.  P.  Alford  and  H.  C.  Farrell,  Factory  Construction  and  Arrange- 
ment, Journ.  of  Am.  Soc.  of  Mech.  Eng.,  Oct.  1911,  Vol.  33,  No.  10,  p.  1144. 


LAYOUT  OF  A  MANUFACTURING  PLANT 


71 


E 

P3 


QJ 


Direction  of 

-< — ^ — ■ 


progress  of  work 


o 


Fig.   17.   The  Principle  of  Easy  Enlargement 

main  direction  of  the  progress  of  work  shall  lie  at  right  angles 
to  the  direction  of  enlargement.  This  simple  but  exceedingly 
important  idea  may  be  graphically  expressed  as  in  Figure  17. 

RR 


1 
1 
1 

^ 

I          R        S 

1 
1 

1 
1 

1 

[jA 

M 

1 
1 

1 

1 

1 

^^ 

1 
1 

1 

1 

1 

M 

mJ 

1 
1 

1 

1 

f^ 

3 

1 

■■     ■-■      n      —    ^  ^  * 

1 
1 

^ 

T         S 

1 

1 

1 

1  OFFICE  1 

1 

Fig.  18.   The  Enlargement  of  a  Unit  I  Pl.aj^ 


RR 


72        ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 


1 
1 

1 

M 

M 

1 

1 

r  1 

3   > 

1 

I    M 

M  J 

1 
1 

1 

^--^ 

1 

1 

11^ 

r  * 

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1 

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1 

L-L^ 

1 
1 

1 

1 

s 

S 

1 

RR 

Fig.  19.   The  ENLARGEnrENT  of  a  Unit  U  Plan 

Enlargement  of  unit  I  and  unit  U  plans.  —  The  above-men- 
tioned law  of  planning  may  be  worked  out  in  I  and  U  plans,  as 


r- 


-1 


r-  -  - 

1 

• 

■ 

1 

1 

1 
1 

1 

1 

' 

1 
1 

1        1 
1        1 

M 

2 

M 

3 

F    S 

R    S 

u 

tz 

0 

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35J 

1 

M 

k 

F 

s 

/})))} 

RR 


Fig.  20.    Arrangement  Permitting  the  Partial  Enlargement  of  a 

Unit  I  Plan 


LAYOUT  OF  A  MANUFACTURING  PLANT 


73 


shown  in  diagrams  18,  19,  and  20.  In  diagrams  18  and  19, 
enough  separate  buildings  are  provided  so  that  each  depart- 
ment either  has  an  entire  building,  or  an  end  of  a  building  to 
itself,  and  has  a  direction  free  for  enlargement  without  shifting 


■«  M     1 


ASSEMBLY 


<         (CCC  M     2 


HOP 


1^ 


I 
I 


<         CCCC  M     3 


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RR 


Fig,  21.   The   Enlargement  of  an  Assembly  Shop  and   Subsidiary 

Departments 


railroad  sidings.  The  housing  of  departments  in  separate  build- 
ings gives  rise  to  what  is  called  a  unit  plan.  In  such  plans 
each  department  can  be  enlarged  by  carrying  the  building  along, 
while  yet  the  proximity  of  any  department  to  the  other  depart- 


74       ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

ments  which  he  along-side  of  it  in  parallel  buildings  is  not 
disturbed. 

In  Figure  20  a  complete  enlargement  would  require  the  mov- 
ing of  the  railroad  siding,  or  the  rearrangement  of  partition 
w^alls. 

Enlargement  of  assembly  shops.  —  The  assembly  type  of 
manufacturing  structure  can  be  arranged  to  permit  of  the  inde- 
pendent expansion  of  parts  in  the  manner  shown  in  Figure  21. 

BIBLIOGRAPHY 

Day,  Chas.:   The  Routing  Diagram  as  a  Basis  for  Lajdng  Out  Industrial 

Plants,  Engineering  Mag.,  Sept.  1910,  pp.  809-821  (with  diagrams). 
Hess,  Henry:    Works  Design  as  a  Factor  in  Manufacturing  Economy, 

Engineering  Mag.,  July  1904,  pp.  499-520. 
Becker,  O.  M.,  and  W.  J.  Lees:    Building  a  Factory:    Site  and  General 

Design,  System,  Sept.  1906,  pp.  239-250. 
Orcutt,  H.  F.  L. :  Shop  Arrangement  as  a  Factor  in  Efl&ciency,  Engineering 

Mag.,  Jan.  1901,  pp.  717-722. 
Collins,  D.  C.  N.:   The  Design  and  Construction  of  Industrial  Buildings, 

Engineering  Mag.,  Sept.  1907,  pp.  906-930. 
Perrigo,  O.  E.:  Rearranging   Machines  for  Greater  Efficiency,  Industrial 

Engineering,  Nov.  1910,  pp.  384-389. 


CHAPTER    V 
BUILDmGS  AND  EQUIPMENTS 

Functions.  —  The  principal  functions  which  manufacturing 
buildings  perform  are  to  control  the  conditions  with  reference 
to  heat,  Ught,  humidity,  and  air  circulation,  ensuring  the  com- 
fort and  health  of  workmen;  and  to  protect  mechanical  equip- 
ment and  materials  in  process  of  manufacture  from  injury  by 
the  weather.  Buildings  provide  foundations  for  machines,  and 
a  rigid  framework  for  the  transmission  of  power.  They  sub- 
divide and  regulate  fire  risks,  isolate  noisy  and  dusty  depart- 
ments, multiply  floor  area  by  means  of  upper  stories,  and 
provide  ^'A  local  habitation  and  a  name"  for  each  of  the 
shops  and  administrative  units. 

The  general  executive  and  the  technical  expert.  —  The 
preparation  of  a  set  of  plans  and  specifications  for  a  manufac- 
turing plant  is  a  task  which  requires  the  working  together  of 
technical  knowledge  and  general  administrative  power.  It, 
therefore,  raises  the  problem  of  the  way  in  which  general 
administrative  officers  shall  adjust  themselves  to  speciahsts. 
It  is  easy  to  say  that  each  should  decide  those  matters  for 
which  he  is  best  prepared  by  formal  training  or  experience. 
The  difficulty  lies  in  the  application  of  the  rule,  for  in  the 
degree  that  men  specialize  they  become  ignorant  of  each 
others'  training  and  special  province  of  action. 

The  general  administrator  must,  of  com'se,  supply  the  given 
factors,  informing  the  architect  as  to  what  line  of  manufacture 
is  intended,  what  funds  are  available,  and  what  site  is  owned  or 
considered.     But  even  upon  such  fundamental  matters  there 

76 


76        ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

may  be  a  profitable  response  from  the  expert's  special  knowledge. 
A  mill  architect  may  be  able  to  point  out  a  by-product  industry 
which  should  be  coupled  with  the  main  project.  Regarding 
financial  limits,  he  can  call  attention  to  those  economies  which 
are  costly  and  those  additional  expenditures  which  will  bring 
more  than  proportional  returns.  He  will  consider  a  proposed 
site,  not  so  much  from  the  point  of  view  of  its  price,  as  with 
reference  to  footings,  drainage,  and  the  effect  of  size,  outline, 
and  contour  upon  the  general  layout. 

As  the  calculations  proceed  from  general  matters  to  such 
details  as  Hve  and  dead  loads,  girder  spans,  location  of  pillars, 
design  of  roof  trusses,  intervals  between  wall  pilasters,  arrange- 
ment of  windows,  location  of  beltways  and  lines  of  shafting,  the 
type  of  ventilating  system  to  be  used,  the  location  of  lighting 
units,  et  cetera,  the  administrator  will  be  confined  more  and 
more  to  such  general  supervision  as  has  for  its  object  to  see  that 
his  firm  secures  the  service  it  is  entitled  to  expect,  considering 
the  fees  paid  and  the  scientific  maturity  of  the  profession 
involved.  When  a  general  administrator  supervises  work  in 
a  field  with  which  he  is  not  familiar,  he  must  resort  to  general 
tests  of  capacity,  such  as  the  steadiness  or  uniformity  of  the 
expert's  opinion  on  any  given  matter,  the  clearness  of  his  ideas 
as  evidenced,  for  example,  by  ability  to  express  the  gist  of  tech- 
nical discussions  in  simple  language,  expertness  in  details  as 
shown  by  speed  and  precision  in  handling,  the  soundness  of 
such  ideas  as  the  expert  may  express  on  subjects  of  which  the 
administrator  happens  to  be  a  competent  judge,  and  unwilling- 
ness to  work  with  methods  or  under  conditions  which  would 
endanger  success. 

In  the  choice  of  machinery  and  equipment,  where  engineering 
theoiy  must  be  supplemented  by  operative  experience,  and 
consequently  there  are  two  aspects  of  a  matter  to  be  kept  con- 
currently in  mind,  the  consulting  expert  and  the  practical  execu- 
tive must  tactfully  feel  their  way  into  an  intimate  cooperation 
as  working  partners,  finding  each  other's  points  of  strength  and 


BUILDINGS  AND  EQUIPMENTS  77 

weakness,  and  supplementing  each  other  in  good  faith.  If 
conceit,  suspicion,  or  intolerance  mark  the  attitude  of  either 
party  this  dehcate  adjustment  will  be  impossible.  If  the  gen- 
eral administrator  possesses  superior  knowledge  of  local  condi- 
tions, he  should  consider  the  applicability  of  the  rates  of  interest, 
of  wages,  of  taxes,  and  of  insurance  used  in  the  computations 
of  the  expert,  as  well  as  the  reasonableness  of  the  scrap  values 
assumed. 

The  object  of  the  discussions  of  this  chapter,  and  of  the  one 
following  it,  is  to  facilitate  the  approach  of  the  general  admin- 
istrator to  the  field  of  the  technical  expert;  it  is  not  to  encourage 
his  encroachment  into  that  field. 

Unit  stresses.  —  The  unit  stresses  to  which  the  various  floors 
will  be  subjected  will  determine  the  thickness  of  the  walls,  the 
cross  sections  of  the  girders  and  pillars,  and  the  style  of  con- 
struction. A  well  prepared  layout,  showing  the  nature  and 
location  of  equipment,  the  delicacy  of  the  alignment  required 
for  the  machines  to  be  used  on  the  various  floors,  and  the 
weight  of  materials  to  be  carried,  will  assist  the  engineer  to 
make  proper  provisions,  while  yet  locaHzing  expensive  forms 
of  construction. 

First  fioor  and  basement.  —  The  height  of  the  first  floor  is 
usually  determined  either  at  the  ground  level,  or  at  the  height 
of  the  floor  of  a  railway  car,  or  at  a  height  sufficient  to  permit 
of  a  basement.  If  the  site  is  reasonabl}"  level,  it  is  desirable  to 
have  like  floors  of  all  buildings  at  exactty  the  same  elevation 
above  the  sea  level,  so  that,  in  case  connecting  structures  are 
built  in  the  future,  the  use  of  stairs  or  incline  planes  may  be 
avoided. 

If  the  first  floor  is  to  be  several  feet  above  the  ground,  a  base- 
ment can  be  added  at  very  little  extra  expense.  As  ]\Ir.  Geo. 
M.  Brill  has  said,  ''To  provide  against  frost  it  is  necessary  to 
carry  foundation  walls  from  three  to  five  feet  below  the  surface 
of  the  ground.  This  depth,  with  the  distance  up  to  the  first 
floor  added,  gives  nearly  the  requisite  height  for  the  basement. 


78        ADMIXISTRATIOX  OF  INDUSTRIAL  EXTERPRISES 

Therefore,  such  space  can  generally  be  obtained  for  the  expense 
of  removing  the  soil  and  increasing  the  depth  of  the  founda- 
tions." ^  Such  basements  are  convenient  for  storage  and  for 
placing  wiring,  shafting,  and  heating  pipes.  On  basement 
floors  the  heaviest  machineiy  can  be  pro\aded  with  adequate 
foundations. 

Widths  and  heights.  —  The  width  of  a  building  and  the  height 
of  its  ceilings  are  dimensions  which  must  be  determined  with 
reference  to  each  other.  Unless  there  is  roof  lighting,  the  greater 
the  width  of  a  building,  the  higher  the  windows  must  be  to  give 
adequate  illumination  in  the  centre  of  the  rooms.  Let  us 
assume,  for  illustration,  that  it  is  decided  to  build  a  structure 
which,  in  each  story,  will  pro\dde  an  inside  shop,  bounded  by 
two  opposite  outside  walls  and  two  partition  walls;  and  that  it 
is  desired  to  secure  in  these  shops  a  hghting  standard  expressed 
by  the  ratio  of  one  square  foot  of  window  area  to  each  five 
square  feet  of  floor  space.  Let  us  further  assume  that  on  the 
average  75  per  cent  of  the  space  of  each  running  foot  of  outside 
wall  can  be  devoted  to  windows.  If  we  set  a  ceihng  height  of 
11  feet,  the  window  area  per  running  foot  of  wall  will  be  8.25 
feet.  This  figure  multiplied  by  5  gives  41.25  feet  as  the  maxi- 
mum allowable  distance  from  the  wall  to  the  middle  line  of  the 
floor.  Calculating  in  the  same  manner  for  the  opposite  wall, 
there  is  indicated  a  total  building  width  of  82.5  feet,  inside 
measure.  Under  like  conditions  a  10  foot  ceiling  would  indi- 
cate a  75  foot  building  width,  and  a  12  foot  ceiling  a  90  foot 
width.  In  the  older  styles  of  factors^  construction  which  per- 
mitted onl}^  50  to  60  per  cent  of  the  wall  space  to  be  in  windows, 
a  width  of  60  feet  was  considered  about  right  for  11  foot  ceihngs. 
In  modern  construction,  which  allows  75  per  cent  of  the  walls 
to  be  in  windows,  such  a  ceiling  height  would  fight  a  building 
75  feet  wide  equaU}-  well.  Exact  adjustments  with  reference 
to  fighting  must,  of  course,  take  into  account  the  interruptions 

^  Location,  Arrangement,  and  Construction  of  Manufacturing  Plants, 
Joum.  Western  Soc.  of  Engineers,  Apr.  1908,  Vol.  13,  Xo.  2,  p.  loS. 


BUILDINGS  AND  EQUIPMENTS  79 

of  pillars  and  belting,  and  the  enhanced  illumination  possible 
with  smooth  ceilings,  white  paint,  and  prism  glass. 

Length.  —  In  determining  the  length  of  a  manufacturing 
building,  the  fire  hazard  exerts  an  important  influence.  Assum- 
ing that  the  width  has  been  determined  by  lighting  considera- 
tions, the  length  of  a  floor  must  not  exceed  such  a  dimension  as 
multiplied  by  the  width  will  give  a  total  floor  area  within  the 
maximum  allowed  by  municipal  building  ordinances  and  the 
rules  of  fire  underwriters'  associations.  The  Chicago  building 
ordinances  fix  the  maximum  floor  area  within  fire  walls  at  9,000 
square  feet  for  ordinary  construction,  12,000  square  feet  for 
slow-burning  construction,  and  30,000  square  feet  for  fire- 
proof buildings.  Using  our  previous  illustration  of  a  building 
82.5  feet  wide,  this  ordinance  would  give  lengths  of  109,  145, 
and  364  feet,  respectively,  at  which  points,  according  to  the 
stjde  of  construction,  it  would  be  necessary  either  to  end  the 
building  or  divide  it  by  a  fire-proof  partition  wall. 

Another  consideration  determining  length  is  the  cost  per 
square  foot  of  floor  area.  The  rapidity  with  which  cost  falls 
with  increase  of  length  differs  according  to  the  width,  the  num- 
ber of  stories,  and  the  style  of  construction  employed.  The 
decrease  of  unit  costs  with  the  increase  of  any  dimension  is  not 
a  uniform  thing  but  is  roughly  in  inverse  proportion  to  the  size 
of  the  dimension  which  is  made  the  basis  of  calculation.  The 
rule  of  decrease  of  unit  costs  is  simply  a  special  case  of  the 
general  principle  of  economy  of  production  on  a  large  scale,  so 
that  if  the  general  specifications  already  make  a  job  large  in  size, 
little  reduction  in  cost  can  be  expected  from  the  further  increase 
of  some  particular  dimension.  When,  therefore,  the  width  of 
a  proposed  structure  is  large,  or  there  are  to  be  many  stories,  or 
the  style  of  construction  is  expensive,  an  increase  in  length 
will  exert  sHght  influence  in  reducing  unit  costs.  It  may  be 
stated  in  a  general  way  that,  for  construction  types  of  average 
expense,  the  increase  of  the  length  of  a  structure  from  50  to 
100  feet  will  decrease  the  floor  square-foot  cost  from  one-fifth 


80        ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

to  one-sixth.  An  increase  from  100  to  150  feet  will  decrease 
cost  by  less  than  one-tenth.  There  is  little  economy  in  in- 
creasing length  beyond  200  feet. 

Number  of  stories.  —  The  fii'st  thought  with  reference  to  the 
proper  mmiber  of  stories  is  the  convenience  of  keeping  several 
processes  within  one  building,  but  distinct  from  each  other. 
In  cotton  spinning  a  three-story  arrangement  is  often  used; 
one  floor  being  used  for  carding,  another  for  mule  spinning  of 
filling,  and  a  tliird  for  the  ring  spinning  of  warp.  The  United 
Shoe  ^lachinery  Company  of  Beverly.  ^^lass..  decided  upon  four- 
story  buildings,  because  their  ser\'ice  departments  reciuire  as 
much  space  as  the  making  departments.  In  theu-  buildings 
the  basements  are  used  for  storage,  the  fii^st  and  second  floors 
for  the  manufactm*ing  departments,  and  the  fourth  floors  for 
tool  manufactiu'e  and  experimental  work. 

The  lowest  cost  per  square  foot  of  floor  space  is  achieved  by 
three  and  four-stoiy  structm-es.  The  reduction  of  cost  above 
two  stories  is  not  considerable  however.  With  the  adcUtion  of 
stories  above  the  fourth,  the  square-foot  cost  increases  rapidly, 
because  of  the  necessity  for  better  fotmdations,  thicker  walls, 
and  more  ample  allowances  for  stairways,,  elevators,  and  fire 
escapes.  Into  the  problem  of  fixing  the  nimiber  of  stories 
enter  such  factors  as  the  value  of  the  land,  the  economy  of 
heating  buildings  when  the  dimensions  are  approximately 
equal  and  the  stiffness  reqimed  in  the  structm'e  to  keep 
machineiy  in  adjustment. 

One-story  buildings.  —  With  the  exodus  of  manufacttu-ing 
establishments  from  large  cities  in  recent  years,  and  the  choice 
of  locations  in  \'illage  and  coimtry  neighborhoods,  one-stoiy 
buildings  have  come  into  freqtient  use.  Mr.  ^I.  S.  Ketchum 
says  in  behalf  of  them,  "The  best  modern  practice  inclines 
toward  single  floor  shops,  with  as  few  di\^ding  walls  and  parti- 
tions as  possible.  The  advantages  of  this  type  over  multiple- 
stor3'  buildings  are,  (1)  the  hght  is  better,  (2)  ventilation  is 
better,  (3)  buildings  are  more  easily  heated,   (4)  foundations 


BUILDINGS  AND  EQUIPMENTS  81 

for  machinery  are  cheaper,  (5)  machinery  being  set  directly 
on  the  ground  causes  no  vibrations  in  the  building,  (6)  floors 
are  cheaper,  (7)  workmen  are  more  directly  under  the  eye  of 
the  superintendent,  (8)  materials  are  more  easily  and  cheaply 
handled,  (9)  buildings  admit  of  indefinite  extension  in  any 
direction,  (10)  the  cost  of  construction  is  less,  and  (11)  there  is 
less  danger  from  damage  due  to  fire.''  ^  Where  clear  floor 
spaces  of  twenty-five  feet  or  over  are  required,  multi-storied 
structures  are  undesirable,  because  of  the  expense  of  support- 
ing upper  floors  on  long  girders. 

Types  of  construction.  —  Factory  buildings  may  be  divided 
into  four  classes,  according  to  the  materials  employed  in  con- 
struction. "Ordinary  frame  "  buildings  are  entirely  of  wood. 
**  Slow-burning  "  mills  are  composed  of  brick  vralls  and  heavy 
wood  framing.  Steel  frame  structures  may  have  curtain  walls 
of  brick  and  floors  of  wood,  with  exposed  frame,  or  the  steel 
may  be  fire-proofed  with  terra  cotta  or  concrete.  Reenforced 
concrete  buildings  consist  of  a  framework  of  massive  posts  and 
deep  slabs  in  which  buried  wires  or  rods  serve  as  tension  mem- 
bers. The  floors  are  usually  of  concrete  and  the  curtain  walls 
of  brick. 

Ordinary  frame.  —  The  "ordinary  frame  "  factory  is  a  form 
of  combustible  architecture  appropriate  only  for  one  or  two- 
story  structm*es,  large  grounds,  small  capital,  and  temporary 
plans.  It  is  constructed  by  the  use  of  numerous  thin  joist  and 
rafters,  supported  by  inside  posts  and  hght  wall  studs,  the 
frame  being  thinly  sheathed  and  roofed  to  keep  out  the  weather. 
It  is  full  of  sharp  edges  of  wood  along  which  fire  runs  rapidly, 
and  of  spaces  in  which  dirt  can  accumulate  and  fire  make  a 
protected  advance.  The  stairways  are  usually  built  of  fight 
inflammable  material  and,  in  case  of  fire,  carry  the  flames  from 
floor  to  floor,  cut  off  escape  from  the  upper  floors,  and  provide 
vertical  shafts  to  improve  the  draft. 

1  The  Design  of  Steel  Mill  Buildings  and  Calculation  of  Stresses  in 
Framed  Structures,  N.  Y.,  1903,  p.  142. 


82        ADMIXISTRATIOX  OF  IXDUSTEIAL  EXTERPRISES 


Slow-burning 


construction.  —  "Slow-burning 


or 


standard 

mill  '"  construction  employ's  timber  in  massive  sizes.  It  rejects 
all  framing  sticks  any  dimension  of  which  is  less  than  six  inches; 
and  it  substitutes  two  to  three  inch  roof  plank  and  three  to  four 
inch  floor  plank  for  the  thin  boards  used  in  ordinary'  frame  build- 
ings. The  reason  for  tliis  generous  use  of  wood  is  that  the  char- 
ring action  of  ordinary  fires  seldom  penetrates  a  soHd  stick  more 
than  half  an  inch.     When  all  the  wood  supports  and  fire  stops 

One  inch  sub-floor  and  one  ixich  surface  floor 
Joist  2"  X  12"  set  16"  on  centers 


Main  Girder 

Fig.  22.    Undesirable  Floor  Construction^ 

The  timber  surface  exposed  in  a  ceiling  area  S  by  8  feet  in  dimension  is 
approximately  26,000  square  inches. 

are  able  to  bear  this  deduction  from  their  dimensions,  without 
bringing  down  the  building,  a  reasonable  opportunity  is  given 
for  putting  a  fire  under  control.  The  difference  between  good 
and  bad  floor  construction  is  illustrated  by  Figures  22  and  23. 

A  second  principle  of  slow-burning  construction  is  that  each 
floor  shall  be  a  closed  fire  unit.  To  accomphsh  this  the  floors 
must  extend  unpierced  from  wall  to  wall,  and  all  elevator  waj^s 
and  stairways  must  be  enclosed  in  walls  as  incombustible  as  the 
floors  themselves.  AU  openings  in  inside  waUs  should  be 
equipped  with  self-closing  flre-proof  doors. 

A  tliu'd  principle  is  that  the  ceihngs  over  all  special!}^  hazard- 

^  Insurance  Engineering  Experiment  Station,  Report  No.  V,  Slow- 
burning  or  Mill  Construction,  Boston,  1908. 


BUILDINGS  AND  EQUIPMENTS 


83 


ous  stock  or  processes  shall  be  protected  with  fire-retardant 
materials  such  as  asbestos  board,  sheet  metal,  or  plaster  on  metal 
lath.  Standard  mill  construction  will  average,  perhaps,  one- 
fourth  more  expensive  than  an  ordinary  frame. 

Steel  frame  buildings.  —  The  chief  structural  members  of 
steel  buildings  comprise  a  system  of  posts  braced  together  at 
the  junctures  of  floors  and  walls  by  horizontal  girts,  and  carry- 
ing a  series  of  braced  roof  trusses.     Roofing  materials  are  affixed 


One  inch  surface  floor  of  maple 

Sub-floor  of  3"  X  5"  pine  planks,  grooved  and'splined 


Main  girders  set  6'  to  10'  on  centres 

Fig.  23.  Desirable  Floor  Construction* 

The  timber  surface  exposed  in  a  ceiling  area  8  by  8  feet  in  dimension  is 
approximately  14,500  square  inches. 


by  means  of  light  purlins  connecting  the  trusses.  The  walls  are 
light  curtains  of  brick,  tile,  or  sheet  metal,  filling  the  rectangular 
spaces  between  the  posts  and  girts.  With  wood  floors  and  roofs, 
such  structures  are  easily  destroyed  by  fire,  as  a  consequence 
of  the  buckling  of  the  exposed  steel.  With  concrete  or  terra 
cotta  floors,  and  fire  proofing  for  the  steel,  such  structures  are 
admirable  but  expensive.  This  form  of  construction  has  the 
advantage  of  being  thoroughly  understood  and  reliable  in  its 
engineering  aspects,  and  of  economizing  space  on  the  lower 
floors  of  many-storied  buildings.  The  steel  frame  can  be 
made  to  serve  not  only  the  function  of  carrying  the  building, 
but  of  supporting  traveling  cranes  and  wall  machines  and 
shafting  and  counter-shafting. 

1  Insurance  Engineering  Experiment  Station,  Report  No.  V,  Slow  • 
burning  or  Mill  Construction,  Boston.  1908. 


84        ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

Reenforced  concrete.  —  Factories  built  of  reenforced  con- 
crete are  slighth'  more  expensive  than  slow-burning  structures, 
but  are  materialh^  cheaper  than  those  of  fire-proofed  steel.  The 
advantages  of  concrete  structures  are  that  the  floors  are  rigid 
and  free  from  ^dbration,  the  sanitary  aspects  are  unexcelled, 
maintenance  charges  are  low,  and  fire  hazard  is  reduced  to  the 
minimum.  The  drawbacks  are  that  the  safety  of  the  structure 
is  vitally  dependent  upon  correct  proportioning,  a  3'et  somewhat 
new  field  of  design;  and  upon  the  mixing  and  pouring  of  mate- 
rials, a  process  which  requires  close  supervision.  The  rear- 
rangement of  shafting  and  machiner}^  is  difficult  in  concrete 
buildings,  unless  provision  is  made  during  constriction  for 
numerous  points  of  attachment  for  hangers  and  floor  bolts. 

Fire  Hazard 

Significance.  —  The  average  fire  loss  of  the  United  States, 
during  the  five  years  1910-1914  inclusive,  was  $212,529,935 
per  year:  a  sum  which  amounted  to  8582,000  per  day,  824,000 
per  hour,  or  approximately  8400  per  minute.  Our  annual  losses 
ma}^  be  pictured  in  the  form  of  a  street  extending  from  Chicago 
to  Denver,  or  from  Chicago  to  Xew  York  City,  lined  closely  on 
both  sides  with  buildings,  and  being  steadily  licked  up  by  fire 
at  the  rate  of  about  three  miles  a  day.  At  everv^  thousand  feet 
on  this  street  there  occurs  a  building  from  which  an  injured 
person  has  been  rescued;  at  eveiy  three-quarters  of  a  mile 
there  is  the  scene  of  a  horrible  death.  Some  of  the  reasons  why 
this  country  sustains  losses  enormously  larger  than  most  other 
civihzed  countries  may  be  indicated  in  an  indirect  way  by 
recounting  the  liistorv'  of  a  fire  in  Berlin,  Germany,  as  reported 
b}"  the  National  Fire  Underwriters'  Association.  ''An  American 
gentleman,  temporaril}'  hving  in  Berhn,  was  awakened  by 
smoke,  and  found  that  a  fire  originating  in  a  room  over  him  was 
eating  its  way  through  the  ceiling  of  his  dining-room.  The 
blaze  was  extinguished  with  chemical  apparatus  without  any 
water  damage  and  without  needless  destruction  of  walls  and 


BUILDINGS  AXD  EQUIPMENTS  85 

furniture.     A  careful  investigation  was  made  by  officials  and 
the  next  morning  the  man  who  turned  in  the  alarm  was  sent 
for  and  taken  before  a  fire  marshal  with  inquisitorial  powers. 
The  examination  of  all  involved  showed  that  the  fire  started 
with  a  hot  coal  which  had  dropped  from  a  laundry  stove  in  the 
attic    and   rolled    upon   an    unprotected    wooden    floor.     The 
tenant  proved  that  the  stove  was  an  appointment  of  the  build- 
ing, provided  by  the  landlord,  and  that  it  was  neither  his  duty 
nor  his  privilege  to  change  it.     The  landlord  proved  that  he 
had  recently  purchased  the  building  under  the  usual  guarantee 
that  all  laws  and  ordinances  had  been  comphed  with  in  con- 
struction  and   appointment,    that   this   stove   had   not   been 
changed,  and  that  his  attention  had  not  been  called  to  any  con- 
dition involving  a  fire  risk.     The  builder  from  whom  the  owner 
purchased  was  then  called  and  had  to  admit  that  he  was  respon- 
sible for  the  setting  of  the  stove  as  the  pohce  had  found  it,  and 
that  he  had  violated  the  law  in  neglecting  to  provide  a  suitable 
metalHc  hearth  of  the  required  kind  and  dimensions  between 
it  and  the  floor.     This  responsibiUty  was  brought  home  to  him 
by  the  assessment  against  him  of  the  damage  to  the  furniture 
and  property  of  the  tenants,  together  with  the  estimated  cost 
to  the  city  of  responding  to  the  alarm  and  extinguishing  the 
fire,  rounded  out  by  an  exemplary  fine  of  500  marks  as  a  re- 
minder that  German  laws  are  intended   to   be   observed.     The 
builder  was  not  required  to  pay  for  the  damage  to  the  building, 
it  being  held  that  while  the  owner  had  not  committed  the  vio- 
lation of  law  which  caused  the  fire,  he  had  been  neglectful  in 
not  discovering  and  correcting  it,  and  for  that  reason  should 
pay  for  his  own  repairs.     He  was  informed  that  only  the  fact 
that  he  had  owned  the  building  for  a  short  time  saved  him  from 
a  fine  in  addition."     Such  laws  and  such  enforcement  help  to  ex- 
plam  the  fact  that  the  usual  per  capita  fire  loss  in  Berhn  is  $0.30 
annually,  while  the  loss  in  Chicago  is  between  $2.50  and  $3.00. 
Safe  construction.  —  The  man  who  causes  a  building  to  be 
constructed  assumes  a  serious  social  responsibiUty  as  the  maker 


86        ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

of  a  public  record.  He  turns  his  mind  inside  out  before  the 
community.  A  miserable  fii'e  trap  is  a  daily  pubKc  demon- 
stration to  the  neighborhood  of  the  character  and  purposes  of 
the  owner.  Good  practice  in  construction  may  be  summarized 
in  a  series  of  points,  those  matters  being  omitted  which  have 
already  been  presented. 

1.  Employ  a  competent  architect. 

2.  Provide  more  than  one  fire  unit  for  all  floors  above  the 
second,  by  constructing  at  least  one  fire-proof  partition  wall. 
The  experience  of  factory  fires  shows  that,  where  a  hundred  or 
more  persons  are  employed  on  an  upper  floor,' stairways  and  fire 
escapes,  even  of  generous  proportions,  are  highly  dangerous. 
If  a  panic  develops,  and  a  few  fallen  persons  cause  a  blockade, 
the  loss  of  life  may  be  ver\'  great.  When,  however,  a  fire-proof 
partition  makes  it  possible  for  persons  to  pass  from  one  room  to 
another  on  the  same  floor,  the  feeling  of  confidence  that  there 
is  ample  time  to  escape  will  preserve  discipline,  and  an  orderly 
exit  will  be  possible.  Even  if  a  building  is  fire  proof,  this  sub- 
di\'ision  of  floors  will  give  protection  to  life  in  this  manner,  as 
weU  as  serve  to  subdivide  the  risk  on  contents. 

3.  Floors  should  have  as  few  openings  as  possible,  and  these 
openings  should  be  metal  protected  to  prevent  the  passage  of 
fire  from  one  storj"  to  another.  All  openings  should  be  finished 
at  the  floor  by  a  boss  to  prevent  water  from  passing  from  upper 
to  lower  floors,  scuppers  being  pro\'ided  for  drainage  through 
the  outside  walls  at  the  floor  level. 

4.  All  walls  and  internal  partitions  should  be  either  fire  proof 
or  of  slow-burning  construction. 

5.  Interior  doorways  connecting  fire  units  should  be  protected 
by  automaticaUy  closing,  fire-proof  doors.  The  windows  open- 
ing upon  aU  shaft-like  areas,  such  as  light  weUs  or  small  courts, 
or  looking  upon  other  nearby  structures,  or  standing  close  to 
an  inside  angle  of  the  same  building,  should  be  pro\ided  with 
metal  casings  and  sash,  and  with  wire-mesh  glass.  It  has 
been  estimated  that  one-third  of  the  total  fire  loss  is  caused 


BUILDINGS  AND  EQUIPMENTS 


87 


by  fire  passing  from  one  building  to  another,  through  window 
openings. 

6.  Stairways,  beltways,  and  elevator  ways  should  be  en- 
closed in  slow-burning  or  fire-proof  partitions.  In  all  cases 
where  many  persons  are  to  be  congregated  on  upper  floors  it 
is  important  that  fire  escapes  should  possess  the  two  following 
characteristics:  first,  persons  going  down  should  not  be  obhged 
to  pass  in  front  of  an}^  opening  of  a  lower  floor  from  which  flames 
can  issue.  The  connection  at  each  floor  should  be  indirect, 
that  is  to  say,  around  a  corner  or  along  an  unpierced  wall. 
Second,  if  the  fire  escape  is  enclosed,  the  menace  of  smoke 
should  be  avoided,  and  the  draft  action  be  broken  up,  by  large 
openings  to  the  outer  air  at  each  floor.  Two  flre-escape  designs 
recommended  by  ''Industrial  Engineering  "  ^  are  as  foUows: 


Open  to  the  air 


Balconywitti  solid  floor 


Fig.  24.  Fire  Escapes  with  Indirect  Approach  and  Free  Air  Spaces 

AT  Each  Floor 


October  1913. 


88        ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

7.  If  the  outer  covering  of  a  roof  is  reasonably  fire  resistant 
a  great  source  of  loss  from  communicating  fires  is  removed. 
Skylights  and  elevator  pent  houses  are  critical  points  in  roof 
construction  because,  in  case  of  fire,  they  are  caps  closing  up 
possible  chimneys.  The  Chicago  ordinances  provide  that 
skylights  must  be  metal  protected  in  buildings  less  than  90 
feet  high,  and  fire-proof  in  all  higher  structures. 

8.  Fires  usuallj^  have  small  beginnings.  The  main  rule  of 
strategy  in  dealing  with  them  is  to  get  at  them  early.  The 
essential  apparatus  for  a  quick  response  is  an  automatic  fire 
alarm,  supplemented  either  by  portable  extinguishers,  or  stand- 
pipe  with  hose  on  all  floors,  or  by  a  system  of  automatic 
sprinklers,  or  by  all  three. 

Automatic  sprinklers.  —  One  of  the  recommendations  of 
the  Board  of  Fire  Underwriters  of  New  York,  following  the 
disastrous  fire  of  the  Triangle  Waist  Company,  was  that  no 
factory  building  containing  inflammable  goods  in  process 
of  manufacture,  or  emploj'ing  in  excess  of  a  limited  number 
of  operatives,  and  over  60  feet  high,  should  be  without 
automatic  sprinklers.  An  automatic  sprinkler  installation 
consists  of  a  system  of  pipes  hung  slightly  below  the  ceiHngs, 
and  so  distributed  that  a  head  or  valve  will  be  centrally 
located  over  every  80  to  100  square  feet  of  floor  space. 
A  fusible  link  in  the  head  melts  at  from  155°  to  160°  F.,  and 
starts  a  water  spray.  The  pipes  must  be  connected  with  a 
dependable  water  supply.  It  is  ad\dsable  to  supplement  the 
city  water  by  placing  a  tank  above  the  roof,  of  sufficient  capacity 
to  operate  one-half  the  sprinklers  on  any  one  floor  for  fifteen 
minutes.  If  the  pipes  are  to  be  placed  where  water  would  freeze, 
they  may  be  filled  with  air  kept  under  pressure  by  a  dry  valve, 
which  will  admit  water  to  the  system  upon  the  opening  of  any 
head.  As  the  system  is  not  intended  to  cope  with  fires  which 
have  gained  headway,  it  is  essential  to  extend  it  to  every  part 
of  the  risk,  or  to  isolate  the  unsprinklered  portions.  When  the 
valves  are  once  opened  they  continue  to  play  until  the  water 


BUILDINGS  AND  EQUIPMENTS  89 

supply  is  cut  off;  it  is  advisable,  therefore,  to  add  an  automatic 
alarm  to  avoid  excessive  water  damage  in  case  the  valves  are 
opened  when  the  building  is  empty.  The  National  Fire  Pro- 
tective Association  has  compiled  the  history  of  8,347  sprinklered 
fires.  Of  these  7,846,  or  94  per  cent,  were  put  out  by  the  sprink- 
lers unaided.  The  failures  were  due  to  the  water  being  turned 
off,  insufficient  water  supply,  concealed  spaces,  fires  gaining  head- 
way in  unsprinklered  parts,  etc.  Fifty-five  per  cent  of  these 
fires  were  extinguished  by  3  valves  or  less,  72  per  cent  by  6 
valves  or  less.  These  facts  show  the  localization  of  water  loss 
as  compared  with  the  general  destruction  incident  to  the  work 
of  city  fire  departments. 

Insurance  companies  belonging  to  the  National  Board  of 
Fire  Underwriters  grant  a  reduction  of  rates  from  30  to  50  per 
cent  for  sprinklered  risks,  depending  upon  the  character  of  the 
equipment.  For  a  risk  of  fair  size,  the  cost  of  installing  can  be 
paid  for  in  a  few  years  out  of  the  saving  in  insurance  premi- 
ums; indeed,  there  are  construction  companies  ready  to  in- 
stall the  system  and  take  as  their  pay  a  part  of  the  insm^ance 
saving. 

Insurance  rates  in  building  finance. —  To  bring  out  the  power- 
ful influence  exerted  by  insurance  rates  upon  the  calculations 
of  building  finance,  let  us  take  a  series  of  illustrative  cases  involv- 
ing different  types  of  construction.  Three  plans  for  a  two-story 
building,  with  dimensions  25x30  feet,  were  drawn  up  by  the 
Home  Insurance  Company  in  1910,  and  submitted  to  builders 
in  all  parts  of  the  United  States  for  bids.  The  first  floor  of  the 
building  was  to  be  flush  with  the  ground ;  the  height  of  the  eaves 
was  to  be  22  feet;  the  peak  of  the  roof  was  to  be  10  feet  above 
the  eaves.  The  bids  in  detail  averaged  as  follows:  framing 
with  brick  walls  $1,096,  framing  with  concrete  walls  $838, 
wood  framing  $619,  tin  roof  painted  $120,  slate  roof  $129,  tile 
roof  $212,  shingle  roof  $87.  Allowing  $1,500  in  each  case  for 
inside  finish,  the  cost  of  construction  with  different  materials 
was  found  to  be, 


90        ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

Style  A.   Brick  walls  and  slate  roof,  $2,725. 
"     B.    Concrete  walls  and  tile  roof,  $2,550. 
"     C.   Frame  walls  and  sliingle  roof,  $2,206. 

Inasmuch  as  the  style  of  construction  affects  the  insurance, 
not  only  on  the  building,  but  on  its  contents  as  well,  it  is  neces- 
sary to  take  both  rates  into  account.  Assuming  average  condi- 
tions as  to  exposure,  moral  hazard,  etc.,  the  insurance  rate  per 
$100  per  annum  on  building  and  contents,  when  used  for  various 
purposes,  would  be  approximately  as  follows : 

Property                    As  DwelHng  As  Store  As  Factory 

A  Building $0,495  $0.95  $1.4125 

''  Contents 0 .  495                 1 .  0125  1 .  4125 

B  Building 0.495  0.95  1.4125 

''Contents 0.495                1.0125  1.4125 

C  Building 0.882  2.75  2.3875 

"  Contents 0 .  882  2 .  6875  2 .  3875 

Let  us  assume  that  if  the  building  is  used  as  a  dwelhng  the 
contents  will  be  insured  at  $1,500,  if  used  as  a  store  at  $3,333, 
and  if  used  as  a  factory  at  $5,000.  The  annual  insurance  pre- 
miums for  each  style  of  construction,  used  in  each  of  the  three 
ways,  wdll  then  be,  for  building  and  contents,  as  follows: 

Property  As  Dwelhng 

A  Bldg.  and  contents      $20 .  91 
B     "       "  "  20.05 

C     "       "  ''  32.69 

The  differences  between  the  annual  premiums  are : 

As  Dwelhng        As  Store        As  Factory 
Between  A  and  C .  .  .       $1 1 .  78  $90 .  61  $62 .  87 

"        B    ''    C...         12.64  92.27  65.35 


As  Store 

As  Factory 

$  59.64 

$109.12 

57.98 

106.64 

150.25 

171.99 

BUILDINGS  AND  EQUIPMENTS  91 

The  differences  in  original  cost  are : 

Between  A  and  C $519 

B    ''    C 344 

If  we  divide  the  difference  in  the  cost  of  the  structures  by  the 
difference  in  the  annual  insurance  premiums,  without  allowing 
anything  for  interest,  we  find  that  the  saving  in  premiums 
will  equal  the  difference  in  the  cost,  in  the  following  periods 
of  time : 

As  Dwelling        As  Store        As  Factory 

Between  A  and  C .  .  .      44  years  5 . 7  years  8 . 1  years 

"      B     ''   C  27      "  3.7     "  5.3     " 

If  we  take  interest  into  account,  compounding  annually  at  6  per 
cent  on  the  sums  represented  by  the  differences  in  first  cost, 
and  putting  the  differences  in  the  premiums  into  a  sinking  fund 
compounding  at  6  per  cent,  we  can  discover  in  what  periods  of 
time  the  saving  in  premiums  will  equal  the  difference  in  cost 
of  construction.  It  is  obvious,  at  once,  that  the  saving  in  premi- 
ums, when  the  structure  is  to  be  used  as  a  dweUing,  is  not  suffi- 
cient to  extinguish  the  difference  in  first  cost.  When,  however, 
we  turn  to  the  premiums  which  must  be  paid  when  the  struc- 
ture is  used  as  a  store  or  as  a  factory,  we  perceive  the  decisive 
effect  of  the  premiums  paid  on  contents.  The  periods  in  which 
the  premiums  saved  will  extinguish  differences  in  cost,  when 
compound  interest  is  calculated,  are: 

As  Store  As  Factory 

Between  A  and  C .  .  A  httle  over  7  years    A  little  over  11  years 
"         B    "    C ..  About  4 J  years  About  6J  years 

From  this  it  can  be  seen  that  cheap,  inflammable  forms  of 
construction,  to  be  used  for  store  or  factory  purposes,  have  no 
standing  whatever  in  a  rationally  financed  plan. 

Nor  does  the  insurance  premium  involve  the  whole  case. 


92        ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

There  is  usually  an  imiiisiu-ed  hazard.  Fuithermore.  the 
expenses  of  maiatenance  and  depreciation  ai'e  generally  higher 
on  inflammable  than  on  slow-bui-ning  or  fire-proof  construction. 
The  annual  rates  of  depreciation  on  the  above-described  struc- 
tures, as  fiunished  by  engineers  from  all  parts  of  the  coimtrj-, 
averriL'  '  '  v  A  style  1.11  per  cent,  for  B  style  1.27  per  cent, 
and  lui  L  jiyle  3.47  per  cent.  In  addition  the  C  t^-pe  building 
is  subject  to  an  extra  expense  of  from  $20  to  $30  for  paint- 
ing ever>'  four  years,  and  to  an  extra  annual  heating  biQ, 
estimated  for  the  northern  parts  of  the  country-  at  S20,  Tak- 
ing all  these  various  items  into  consideration,  the  net  rent  of 
A  and  B  stnictm-es  for  20  years  has  been  calculated  at  7.77 
per  cent  on  the  investment ;  that  for  C  structiu'e  at  5.16  per 
cent. 

Safe  operation.  —  Some  points  of  good  practice  in  the  opera- 
tion of  shops,  to  lessen  fire  risks,  are  as  follows: 

1.  The  segregation  of  hazardous  processes,  and  of  all  but 
the  daily  reqiui*ements  of  such  substances  as  gasoline,  should 
be  complete. 

2.  Sharp  supervision  shoiild  be  given  to  wastes  and  oily  rags 
and  dust  preventives,  and  to  all  materials  containing  vegetable 
oils  which  oxidize  at  low  temperatmes.  ^letal  waste  cans  are 
now  to  be  had  which  can  be  conveniently  opened  and  closed 
by  means  of  a  foot  lever. 

3.  The  alignment  of  shafting,  and  the  condition  of  all  hangers 
should  receive  regular  attention.  The  stages  of  a  shafting  fire 
are,  first,  combustion  of  the  oil  and  waste  at  the  bearing  as  the 
result  of  excess  friction  from  lack  of  ahgnment;  second,  the 
melting  of  the  Babbitt  metal  of  the  bearing :  third,  the  drip  of 
this  hot  metal,  together  with  btmiing  drops  of  oil,  to  the  floor; 
fourth,  general  conflagration. 

4.  Smoking  should  be  prohibited  during  work  hoiu^  and  in 
work  apartments  and  stock  rooms. 

5.  The  idea  of  a  fire  drill  at  frequent  intervals  should  be 
carried  from  our  schools  to  our  factories.     If  fire-fighting  appa- 


BUILDINGS  AND  EQUIPMENTS  93 

ratus  is  installed  by  employers,  preliminary  exercise  in  its  use  is 
as  intelligent  a  thing  as  military  drill  is  for  war,  or  boat  drill  is 
for  Atlantic  liners. 

Heating  and  Ventilation 

Inadequate  heating  and  ventilation  cause  inefficiency  through 
sickness,  lowered  vitality,  and  the  inferior  average  of  ability 
which  results  from  the  fact  that  those  persons  for  whom  employ- 
ers compete  actively  will  select  comfortable  surroundings.  The 
employees  of  the  United  States  Pension  Bureau  averaged  18,736 
lost  days  per  year  on  account  of  sickness,  while  they  were  housed 
in  poorly  ventilated  buildings.  When  the  Bureau  was  moved 
to  its  present  well-equipped  quarters,  the  losses  fell  to  10,114 
days  per  year.  The  Telegraph  and  Telephone  Company  of 
Cambridge,  Mass.,  employing  betw^een  50  and  60  girls,  with 
poor  ventilation  in  1906  averaged  4.9  per  cent  of  the  force 
absent,  and  in  the  following  year  4.5  per.  cent.  When  good 
ventilation  was  provided  the  absences  fell  to  1.9  per  cent.'^ 

Good  air.  —  Ideal  heating  and  ventilation  consists  in  dis- 
tributing, without  injurious  draft,  an  adequate  supply  of  air 
of  the  proper  temperature  and  degree  of  humidity,  and  free 
from  dust  and  noxious  gases.  The  traditional  criterion  of  the 
quality  of  air  has  been  the  percentage  of  carbon  dioxide  (CO 2) 
in  it.  It  has  been  held  that,  in  first-class  practice,  the  propor- 
tion should  not  exceed  6  parts  per  10,000,  while  the  maxi- 
mum allowable  was  from  9  to  12  parts  per  10,000.  To  attain 
a  standard  of  6  parts  per  10,000  requires  an  hourly  supply  of 
2,500  cubic  feet  of  fresh  air  per  individual.  The  emphasis  in 
ventilation  is  now  placed  by  physiologists  entirely  upon  the 
temperature  and  humidity  of  the  air.  Experiments  appear  to 
show  that  air  is  bad  chiefly  by  reason  of  conditions  which  inter- 
fere with  the  proper  functioning  of  the  skin  in  regulating  the 
temperature  of  the  body. 

1  C.  E.  A.  Winslow,  Factory  Sanitation  and  EflBciency,  Industrial 
Engineering,  June  1911,  p.  46. 


94        ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

Temperature.  —  A  winter  temperature  of  between  60°  and 
70°  F.  should  be  maintained  in  manufacturing  departments, 
and  somewhat  higher  temperatures  in  office  departments.  With 
^-igorous  exertion  55°  to  60°  F.  is  not  uncomfortable,  but  if 
labor  is  intermittent,  or  the  quick  and  accurate  use  of  the 
fingers  is  necessary',  a  temperature  of  60°  to  65°  F.  is  better. 
Heating  calculations  must  take  into  account  the  type  of 
building  construction,  area  of  outside  walls,  window  areas, 
velocities  of  the  wind,  outside  temperatures,  isolation,  rate 
of  change  of  inside  air,  and  the  heat  generated  by  persons, 
lights,  and  machines. 

Humidity.  —  The  capacity  of  air  to  absorb  moisture  vapor 
increases  with  its  temperature.  If  outside  air  at  75  per  cent 
humidity,  and  at  temperatures  of  10°,  20°,  or  30°  F.  be  heated 
to  65°  F.,  it  becomes  desert -like  in  dryness  with  humidities  of 
8.5,  14,  and  21  per  cent,  respectively.  Air  of  this  degree  of 
drjmess  sucks  moisture  energetically  from  everj^thing  with 
which  it  comes  in  contact.  Some  processes,  such  as  textile 
spinning  and  cigar  making,  are  impossible  in  such  air.  Upon 
workmen  the  effect  is  bad:  the  membranes  of  the  nose  and 
throat  become  parched,  while  the  dust  raised  bj^  the  dr3^ness  of 
surrounding  objects  contributes  to  increase  irritation.  The 
Chicago  ordinances  require  that  the  humidit}^  of  factories  shall 
be  kept  between  40  and  85  per  cent.  The  normal  humidit}^  of 
out-door  air  may,  perhaps,  be  taken  as  65  per  cent.  This  is 
an  acceptable  standard  for  inside  practice. 

Ventilating  and  heating  methods.  —  The  ordinary  system 
of  ventilation  is  to  depend  upon  the  natural  porosity  of  building 
materials,  and  to  get  an  occasional  change  of  air  by  the  time- 
honored  device  of  opening  the  windows.  The  ordinar}^  method 
of  heating  shops  is  to  attach  steam  pipes  to  the  outside  walls. 
Such  equipment  is  expensive  in  fuel  and  in  the  upkeep  of  piping, 
and  does  the  job  poorly.  A  sheet  of  hot  air  flows  upward  along 
the  windows  and  outside  walls,  cooling  rapidly  as  it  passes,  and 
finall}^  takes  its  place  as  a  bank  of  warm  air  next  the  roof  or 


BUILDINGS  AND  EQUIPMENTS  95 

ceiling.  Meanwhile  the  central  and  lower  parts  of  the  room 
remain  cold.  The  ideal  system  is  indirect  radiation  and  mechan- 
ical ventilation.  The  apparatus  required  consists  of  an  intake 
and  fan,  a  battery  of  coils  for  heating  or  cooHng,  a  chamber  of 
cold  water  sprays  or  steam  sprays  to  regulate  humidity,  a  sys- 
tem of  fresh  air  supply  pipes  of  properly  graduated  dimensions 
and  proper  sized  openings,  together  with  corresponding  venti- 
lators for  the  outflow  of  used  air.  With  such  a  system  about 
one-fourth  as  much  steam  piping  is  required  as  with  direct 
radiation,  for  the  fan  drives  the  air  rapidly  over  the  heating 
coils.  The  piping,  also,  is  conveniently  concentrated  for  repair 
in  a  basement  location,  where  leakage  can  do  no  harm. 

Artificial  Illumination 

It  has  been  said  that  man,  in  the  productive  process,  can  do 
nothing  with  materials,  beyond  moving  them  from  place  to 
place  where  they  are  variously  acted  upon  by  natural  forces. 
The  sense  most  employed  in  locating  tilings  is  sight.  This 
sense,  in  our  latitude,  must  be  aided,  for  about  15  per  cent  of 
the  working  day,  by  artificial  illumination.  The  expense  of 
good  illumination  is  a  neghgible  factor  in  comparison  with  its 
efficiency.  One  of  the  most  expensive  forms  of  fighting  is  the 
incandescent  carbon-filament  lamp.  The  cost  of  operating  a 
16  candle-power  lamp  of  this  character  is  about  one-half  cent 
per  hour.  If  a  w^orkman  receiving  thirty  cents  wages  per  hour 
is  hindered  one  minute  by  defective  iUumination,  the  wage  loss 
alone,  to  say  nothing  of  fixed  charges,  is  sufficient  to  provide 
a  lamp  for  an  hour.  If  a  workman  loses  ten  per  cent  of  his 
efficiency  during  working  hours  because  of  poor  light,  the  wage 
loss  would  keep  six  lamps  going  during  the  enthe  day.  Flexner 
and  Dicker  have  estimated  the  cost  of  one  100-watt  lamp  for 
each  man,  burning  3|  hours  per  day,  at  $6.36  per  year.^     If  a 

1  Good  Illumination  as  an  Accident  Preventer,  Proc.  of  Illuminating 
Engineering  Society,  1914. 


96        ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

workman  receives  $1,000  a  year  in  wages,  the  cost  of  lighting  is 
but  about  f  of  1  per  cent  of  the  payroll. 

Essentials.  —  The  essentials  of  an  adequate  system  of  illumi- 
nation are,  1,  sufficient  amount;  2,  proper  distribution  and 
diffusion;  3,  absence  of  glare;  4,  freedom  from  fluctuations, 
and,  5,  freedom  from  injurious  invisible  radiations. 

Intensity.  —  The  light  intensity  required  for  the  illumination 
of  yards,  paths,  and  warehouses,  where  men  must  be  able  to 
see  general  inequalities  and  large  obstacles,  and  must  have 
sufficient  light  to  load  and  unload  coarse  materials,  operate 
cranes,  and  handle  large  tools,  will  vary  from  0.15  to  0.5  foot 
candles.  The  general  illumination  of  machine  shops  should 
be  between  one  and  two  foot  candles.  For  the  reading  of 
blue  prints  and  the  close  inspection  of  work  in  machine  shops, 
and  for  desk  work  in  offices,  the  intensity  should  be  between 
3  and  6  foot  candles.  Drafting  rooms  call  for  from  4  to  6 
foot  candles. 

Distribution  and  diffusion.  —  The  difficulty  of  distribution 
lies  in  providing  an  intense  illumination  for  the  particular  field 
of  a  man's  work,  while  giving  to  the  room  as  a  whole  an  econom- 
ical general  fighting  of  low  intensity;  and  yet,  in  doing  these 
two  things,  to  avoid  the  necessity  for  any  individual  pair  of 
eyes  making  the  change  from  one  degree  of  illumination  to 
another  frequently  or  rapidly.  A  satisfactory  solution  of  the 
problem  rec^uires  the  careful  location  of  small,  individual, 
hooded  lights,  set  close  to  the  work,  and  the  general  illumina- 
tion of  the  apartment  by  high-placed,  open  lights  of  greater 
power.  It  requires,  also,  such  a  division  of  labor  in  the  shop 
or  office  as  will  permit  each  person  to  work  in  one  plane  of  illu- 
mination, as  far  as  possible. 

The  control  of  the  reflection  of  light  from  non-luminous  objects 
in  an  apartment  is  quite  as  important  as  the  proper  subdivision 
and  location  of  the  primary  light  sources.  The  field  upon  which 
a  workman's  eyes  are  focused  at  any  moment  is  but  a  minute 
fraction  of  the  total  area  which  must  be  illuminated.     Economy 


BUILDINGS  AND  EQUIPMENTS  97 

in  the  use  of  illuminant  demands,  therefore,  that  the  objects 
at  which  the  workman  is  not  looking  should  reasonably  reflect 
back  the  light  radiated  to  them,  and  thus  assist  in  the  illumina- 
tion of  the  object  on  which  the  eyes  rest.  It  has  been  said  that 
a  20  candle-power  light  will  give  as  much  illumination  in  a  room 
with  white  surfaces  as  100  candle-power  will  give  in  a  black 
room.  It  is  good  practice  to  paint  ceilings  and  walls  and  posts 
a  light  color.  By  this  means  a  diffused  and  soft  light,  very 
agreeable  to  the  eyes,  is  produced. 

Glare.  —  Glare  is  the  dazzling  or  blinding  effect  produced 
by  excessive  light.  The  word  is  used  to  signif}^  the  more  or 
less  temporary  injury  of  the  retina  by  intense  light.  It  also 
designates  delay  in  accommodation,  or  the  inability  of  the  pupils 
to  at  once  take  in  sufficient  hght  for  definition,  when  dropping 
from  a  high  to  a  low  degree  of  illumination.  A  third  significa- 
tion of  glare  is  that  a  pupil  which  is  taking  in  light  from  an 
intense  source  cannot,  at  the  same  time,  open  widely  enough  to 
give  proper  definition  of  less  brilliantly  illuminated  objects.  A 
workman  who  has  a  dazzling  light  source  or  reflection  in  his 
field  of  vision,  and  who  is  vainly  trying  to  see  a  moderately 
illuminated  piece  of  work,  may  complain  of  insufficient  light, 
when  he  is  really  suffering  from  excess  of  light.  If  the  bril- 
liant fight  is  excluded  from  the  eyes,  the  pupils  dilate  so  that 
the  work  is  seen,  and  the  trouble  disappears. 

As  the  progress  of  illumination  engineering  causes  new  and 
increasingly  intense  light  sources  to  be  brought  into  use,  the 
danger  of  glare  is  increasing.  It  has  been  advanced  as  a  good 
general  rule  that  no  one  should  be  exposed  to  the  frequent  view 
of  any  luminous  object  the  brilfiancy  of  which  exceeds  four 
candle-power  per  square  inch.  As  the  intensity  of  the  gas 
mantle  is  about  32.5  candle-power  per  square  inch,  and  of  the 
carbon-filament  558  candle-power,  and  of  tungsten,  tantalum, 
and  arc  lamps  much  more,  this  rule  can  be  interpreted  to  mean 
that  no  light  sources,  and  no  mirror-like  or  undiffused  reflection 
of  the  direct  rays  from  such  a  source,  should  be  directly  visible. 


9S        ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTEEPRISES 

BurLDEN'G  Contracts 

The  various  forms  of  building  contracts  may  be  classified 
under  four  heads,  with  reference  to  the  manner  in  which  the 
financial  relations  between  the  owner  and  the  contractor  are 
determined. 

1.  Lump-simi  contracts.,  or  the  form  in  common  use  at  the 
present  time. 

2.  Cost-plus-a-percentage  contracts,  with  or  without  a 
guarantee  not  to  exceed  a  stated  maximimi. 

3.  Cost-plus-a-fixed-5um  contracts,  one  modified  form  of 
which  provides  a  theoretical  cost,  and  establishes  a  sUding  scale 
of  bonuses  it  actual  cost  is  less,  and  of  penalties  if  it  is  more. 

4.  Unit-price  contracts.  pro\'iding  a  series  of  prices  according 
to  which  all  materials  furnished  and  put  in  place  are  to  be  paid 
for. 

Lump-sum  contracts.  —  Under  this  plan  the  owner  pro^Tdes 
complete  ch-awings  and  specifications,  on  the  basis  of  which 
contractors  bid  by  naming  a  sum  for  which  the  work  will  be 
done.  The  lowest  bidder  seciu^es  the  work,  unless  there  is  a 
clause  employed  which  permits  the  owner  to  reject  any  or  all 
bids. 

Among  the  advantages  of  this  s^'stem  the  following  poiuts 
may  be  mentioned: 

1.  It  necessitates  clear  and  complete  specifications  and 
drawiags.  In  the  preparation  of  these  the  owner  is  likely  to 
determioe  exactly  what  he  wants  before  he  calls  for  bids.  The 
bids  enable  the  owner  to  know  at  the  start  what  the  work  will 
cost,  so  that  he  can  promptly  take  the  necessary  steps  to  finance 
himself. 

2.  The  contractor,  likewise,  knows  from  the  moment  his 
bid  is  accepted  what  materials  and  laborers  will  be  necessary, 
and  what  his  remuneration  wiU  be. 

3.  In  the  competition  of  bidding  there  is  definiteness  and 
simphcity .     The  plans  are  handed  out ;  the  bid  is  a  single  figure. 


BUILDINGS  AND  EQUIPMENTS  99 

The  disadvantages  include  the  following  points: 

1.  The  labor  of  arriving  at  bids  is  considerable.  The  owner 
must  endeavor  to  foresee  and  provide  for  every  contingency  in 
the  plans.  The  bidder  must  forecast  all  that  might  arise  in  the 
doing  of  the  work.  The  labor  of  making  such  advance  calcula- 
tions is  labor  lost  to  bidders  who  fail  to  land  the  contract. 

2.  On  work  of  any  magnitude,  such  forecasts  are  seldom 
accurate.  If  the  contract  contains  clauses  which  place  much 
arbitrary  power  in  the  hands  of  the  supervising  architect,  it  is 
impossible  for  the  bidder  to  tell  what  will  happen.  On  the  other 
hand,  if  changes  or  additions  are  made  as  work  progresses,  the 
contractor  has  a  chance  to  bring  in  the  much-dreaded  bill  of 
extras;  and  he  has,  also,  an  excuse  for  not  finishing  the  work 
on  time. 

3.  When  phj^sical  uncertainties  exist,  such  as  the  chance 
that  work  on  footings  will  reveal  quicksand,  or  tunnelHng  work 
will  encounter  rock,  a  contractor  may  be  made  a  bankrupt  or 
may  pocket  unreasonable  profits.  A  contractor  specializes  upon 
labor,  materials,  and  work  processes,  and  so  is  a  manufacturer 
rather  than  a  trader.  He  is  usually  not  equipped  to  carry 
speculative  risks :  and  he  cannot  make  the  thoroughgoing  inves- 
tigations which  will  avoid  them,  so  long  as  he  is  a  mere  bidder 
uncertain  of  obtaining  a  contract.  The  owner  is  to  possess 
the  finished  work,  and  it  seems  as  fair  that  he  should  pay  exactly 
what  it  costs  as  that  he  should  pay  an  average  or  standardized 
cost. 

4.  The  greatest  objection  which  can  be  made  against  the 
lump-sum  contract  is  that  it  arrays  the  owner,  with  his  engineer 
or  supervising  architect,  squarely  against  the  contractor,  making 
the  interests  of  the  two  as  opposite  as  possible.  This  antago- 
nism prevents  these  persons,  who  usually  have  different  kinds  of 
knowledge  and  talent,  from  working  in  harmony.  It  is  this 
antagonism  which  makes  loop-holes  and  extras  dangerous,  and 
which  makes  necessary  elaborate  specifications  and  rigid  systems 
of  inspection. 


100      ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

Cost-plus-a-percentage  contracts. —  Under  tliis  plan  the  con- 
tractor agrees  to  furnish  all  the  materials,  labor,,  superintend- 
ence, and  equipment  necessary-  for  the  doing  of  a  given  piece  of 
work.  This  he  agrees  to  do  at  cost,  taking  his  own  remimera- 
tion  in  the  form  of  a  percentage —  10  to  15  per  cent  —  calcu- 
lated on  the  cost.  There  is  sometimes  an  arrangement  that 
ihe  cost  is  not  to  exceed  a  specified  amount. 

The  advantages  may  be  first  considered. 

1.  There  is  no  dispute  between  the  parties  as  to  the  quahties 
of  materials  or  the  character  of  the  worlonanship  to  be  used,  and 
very-  httle  as  to  the  rate  of  advancement  of  work.  The  owner 
has  his  way  and  pays  for  it.  The  contractor  has  no  reason  to 
withhold  ad^-ice  which  wiU  lower  the  cost  for,  if  he  earns  less 
for  the  job,  the  lowering  of  cost  usually  means  the  ehmination 
of  slow  kinds  of  work,  so  that  his  rate  of  earning  in  terms  of 
time  is  increased. 

2.  Plans  may  be  changed  as  the  work  advances.  This  is 
convenient  in  cases  where  the  specifications  are  poor  or  the 
drawings  fuU  of  imperfections. 

3.  Time  may  be  saved  by  starting  work  promptly.  The 
specifications  relating  to  later  stages  of  the  work  can  be 
prepared  while  the  earher  classes  of  work  are  under  way. 

4.  The  contractor,  by  being  reheved  of  woriy  as  to  the 
weather,  cost  of  materials,  etc.,  has  his  mind  free  for  the 
problem  of  doing  the  work  in  the  best  possible  manner. 

5.  The  owner  has  everv'  motive  to  refrain  from  unreasonable 
demands.  He  is  quickly  educated  by  the  cost  reports  he 
receives. 

Passing  to  the  disadvantages,  we  find: 

1.  The  elasticity  of  the  plan  encoirrages  the  starting  of 
operations  before  plans  have  been  weU  thought  out,  and  before 
the  cost  has  been  reasonably  counted  by  the  owner. 

2.  Trouble  may  arise  m  any  ''  cost  plus  "  contract  as  to  what 
items  may  properly  be  included  as  cost.  If  the  contractor 
furnishes  derricks  and  tools  and  wagons,  what  charge  should  be 


BUILDINGS  AND  EQUIPMENTS  101 

made  for  them?     How  shall  the  use  of  the  contractor's  build- 
ings and  storage  yards  and  office  force  be  charged  for? 

3.  Contracts  based  on  cost  are  obviously  open  to  the  fraud 
of  secret  rebates.  If  the  contractor  does  not  take  these  rebates 
for  himself,  he  may  nevertheless  fail  in  diUgence  in  securing 
them  for  his  employers. 

4.  There  is  an  idea  among  workmen  that  it  is  justifiable  to 
''  soldier  "  at  an  owner's  expense,  whereas  to  soldier  on  a  con- 
tractor is  to  rob  him  of  his  Hving.  This  idea  workmen  are 
made  bold  to  apply,  since  they  understand  that  the  owner  will 
not  soon  be  on  the  market  for  labor  again.  The  contractor 
has  not  the  incentive  to  manage  with  energy,  except  as  speed 
increases  the  number  of  jobs  he  can  handle  in  a  season. 

5.  The  largest  costs  roll  up  in  a  given  time  when  easy,  com- 
monplace, standardized  forms  of  work  are  under  way.  The 
contractor  will  find  it  httle  to  his  interest  to  do  fine,  difficult, 
or  unusual  work,  which  requires  careful  supervision,  but  upon 
which  the  percentage  earnable  per  week  is  low. 

6.  The  owner,  who  is  at  best  an  intelUgent  amateur,  may 
be  overstimulated,  so  that  he  attempts  to  dictate  in  matters 
which  he  does  not  understand.  A  dispute  as  to  the  division 
of  administrative  authority  may  arise  unless  decisive  clauses 
are  in  the  contract. 

Cost-plus-a-fixed-sum  contracts.  —  This  plan  provides  that 
the  owner  shall  pay  the  cost-  of  a  piece  of  work,  and  an 
additional  fixed  sum  as  the  contractor's  profit. 

The  plan  was  devised  to  avoid  the  premium  on  sloth  which 
the  percentage  plan  was  thought  to  offer.  By  pushing  his  work 
through  energetically,  the  contractor  gets  his  reward  without 
diminution  and  in  a  shorter  time. 

The  defects  of  the  plan  are  similar  to  those  of  the  cost-plus-a- 
percentage  plan,  except  for  the  premium  on  sloth. 

Unit-price  contracts.  —  The  unit -price  plan  involves  a 
schedule  of  agreed  rates  at  which  the  owner  will  pay  the 
contractor  for  various  classes  of  materials,  when  finished  and 


102      ADMIXISTRATION  OF  INDUSTRIAL  EXTERPRISES 

set  in  their  places  in  the  structure.  It  is  a  sort  of  lump-sum 
contract  calculated  for  each  unit  of  work:  or  it  is  a  species  of 
piece-rate  appHed  to  contract  work.  Sometimes  a  maximum 
amount  to  be  paid  for  each  kind  of  work  is  stipulated. 

The  merits  of  the  unit  price  may  be  designated  broadl}^  by 
saying, 

1.  That  it  pays  accurately  and  exacth^  for  what  is  done,  and 
for  that  onl}'. 

2.  It  puts  a  premium  on  speed,  as  does  the  cost-plus-a-fixed- 
sum  contract  or  the  lump-sum  contract. 

There  are  several  disadvantages: 

1.  The  interests  of  contractor  and  owner  tend  to  draw  apart 
as  in  the  lump-smn  contract. 

2.  To  protect  the  owner  in  the  matter  of  quahty,  and  to 
determine  the  quantities  for  which  pa^Tuent  is  to  be  made, 
^'quantit}"  survejdng  "  becomes  necessar>\  If  the  construction 
to  be  paid  for  is  a  simple  thing,  such  as  an  earthen  embank- 
ment, a  single  survey  at  the  conclusion  of  the  work  is  suffi- 
cient. In  architectural  construction,  however,  where  one 
material  covers  another,  repeated  surveys  must  be  made,  so 
that  the  plan  becomes  expensive.  ^'Quantity  surve^Tng  "  is 
common  in  England,  where  the  salaries  of  engineers  and 
inspectors  are  much  lower  than  they  are  in  America,  and 
where  construction  methods  do  not  so  greatly  emphasize 
speed. 

3.  Rival  bids  submitted  under  this  plan  can  be  compared 
with  difficulty.  It  is  asserted  that  it  is  possible  to  prepare 
deceptive  bids,  in  wliich  the  more  prominent  rates  are  low, 
while  ''jokers  "  are  liidden  away  where  they  will  attract  httle 
attention  until  operations  are  begun. 


BUILDINGS  AND  EQUIPMENTS  103 


BIBLIOGRAPHY 

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Apr.  1907,  incl. 

Timmis,  W.  S.:  Manufacturing  Buildings  in  Cities,  Iron  Age,  Jan.  4,  1906, 
pp.  29-33. 

Main,  Chas.  T.:  Mill  Construction,  Proc.  N.  Eng.  Cotton  Mfrs.  Asso.,  1886; 
Revised  in  the  Proc.  of  Apr.  1904,  No.  76;  Revised  as  '"Approxi- 
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1910,  in  Engineering  News,  Jan.  1910,  p.  96. 

Evers,  C.  C. :    The  Commercial  Problem  in  Buildings,  N.  Y.,  1914. 

Bolton,  R.  P.:    Building  for  Profit,  N.  Y.,  1911. 

Slow-burning  or  MiU  Construction,  Report  No.  5  of  the  Insurance  Engi- 
neering Experiment  Station,  issued  under  the  direction  of  the  Boston 
Mfrs.  Mutual  Fire  Ins.  Co.,  Boston,  1908. 

BriU,  Geo.  M.:  Location,  Arrangement,  and  Construction  of  Manufactur- 
ing Plants,  Journ.  of  V^^estern  Soc.  of  Engineers,  Apr.  1908,  Vol.  13, 
No.  2,  pp.  149-172. 

Day,  Chas.:  Industrial  Plants:  Their  Arrangement  and  Construction, 
N.Y.,  1911. 

TjTTeU,  Henry  G.:  A  Treatise  on  the  Design  and  Construction  of  Mill 
Buildings  and  Other  Industrial  Plants,  Chicago,  1911,  especially 
Part  I,  Chs.  I  to  IX  inch,  on  The  Theory  of  Economic  Design. 

TjTreU,  Henry  G.:     Engineering  Shops  and  Factories,  N.  Y.,  1912. 

Perrigo,  O.  E.:  Modern  Machine  Shop  Construction,  Equipment,  and 
Management,  N.  Y.,  1906.  Ch.  II,  General  Plans;  Ch.  Ill,  General 
Construction  of  the  Buildings;  Chs.  IV,  V,  and  VI  on  Slow-burning 
Construction. 

Kimball,  D.  S.:  Principles  of  Industrial  Organization,  N.  Y.,  1913.  Ch. 
XIII,  Location,  Arrangement,  and  Construction  of  Industrial  Plants. 

Price,  Geo.  M.:  The  Modern  Factory:  Safety,  Sanitation,  and  Welfare, 
N.  Y.,  1914.     Ch.  II,  The  Workplace;   Ch.  VI,  Factory  Sanitation. 

Diemer,  H.:  Factory  Organization  and  Administration,  N.  Y.,  1910. 
Ch.  Ill,  The  Planning  of  Factory  Buildings  and  the  Influence  of 
Design  on  their  Productive  Capacity. 

Factory  Sanitation,  Pittsburg,  1913,  The  Standard  Sanitarv^  Mfg.  Co., 
gratis. 

Lane,  H.  M.:  Special  Handling  Appliances  for  the  Shop,  Iron  Age,  Apr.  4, 
1907,  pp.  1033-1039. 

The  building  ordinances  of  the  larger  cities. 


104      ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

On  the  Fire  Hazard  — 

Crosby,  E.  U.,  and  Fiske.  H.  A.:   Crosby-Fiske  Handbook  of  Fire  Protec- 
tion, Louisville,  Ky.,  5th  Ed.,  1914. 
Crocker.  Edw.  F.:   Fire  Prevention,  X.  Y.,  1912. 
McKeon,  Peter  J.:    Fire  Prevention,  X.  Y.,  1912. 
Evans,  P.  (Editor) :  Official  Record  of  the  First  American  Xational  Fire 

Prevention  Convention,  held  at  Philadelphia,  Pa.,  Oct.  13-lS,  1913. 

Philadelphia,  Pa.,  1914. 
Proceedings  of  the  Xational  Board  of  Fire  Underwriters.  X.  Y. 
Zartman,  Lester  W.  (Fkiitor) :   Fire  Lisurance,  Xew  Haven,  Conn.,  1909. 

Ch.  V,  Rates  and  Hazards.  Rich.  M.  Bissell:  Ch.  VI.  Fire-rating:.  A.  F. 

Dean;  Ch.  VII,  Scientific  Fire-rating.  Miles  M.  Dawson;  Ch.  XIV, 

Fire  Insurance  Engineering,  F.  C.  Moore:  Ch.  XV,  Fire  Protection 

with  Automatic  Sprinklers,  F.  C.  Moore. 
Dean.  A.  F.;    Anahiic  System  for  the  Measurement  of  Relative  Fire 

Hazards,  Chicago,  1906. 
Duncan,  .John  C:   The  Principles  of  Industrial  Management,  X.  Y.,  1911. 

Ch.  X,  Fire  Precaution  and  Its  Effect  on  Layout  and  Structure. 
Huebner,  S.  S.:     Property  Insurance.  X.  Y..  1911. 
Price,  Geo.  M.:    The  Modem  Factory:    Safety.  Sanitation,  and  Welfare, 

X.  Y..  1914.    Ch.  III.  Factory  Fires  and  Their  Prevention. 
The  files  of  Safety  Engineering,  X.  Y..  (monthly^ 
WoodbuTA',  C.  J.  H.:  Fire  Protection  of  Mills,  X.  Y. 

On  Heating  and  Ventilation  — 

Carpenter,  R.  C:    Heating  and  Ventilating  Buildings,  5th  Ed.,  X.  Y.,  1910. 
Alien,  J.  R.:   Xotes  on  Heating  and  Ventilation,  Chicago,  1906. 
Winslow,  C.  E.  A.:    Ventilation,  Air  vSpace,  Humidity,  and  Temperatm-e, 

Bulletin  Xo.  13  of  the  Am.  Asso,  for  Labor  Legislation,  X.  Y. 
Perrigo,   O.  E.:    Modem  Machine  Shop  Construction.   Equipment,   and 

Management,  X.  Y.,  1906.     Ch.  XII,  The  System  of  Heating  and 

Ventilation. 
Price,  Geo.  M.:  The  Modem  Factory:    Safety,  Sanitation,  and  Welfare, 

X.  Y.,  1914.     Ch.  Vin,  Air  and  Ventilation  in  Factories. 
Lee,  F.  S. :  Fresh  Air,  Popular  Science  Monthly,  Apr.  1914. 
Haldane,  J.  S.:   The  Removal  of  Dust  and  Fumes  in  Factories,  Joum.  of 

Society  of  Arts,  May  22,  190S. 
Proceedings  of  Am.  Society  of  Heating  and  Ventilating  Engineers,  X.  Y. 
Moses,  P.  R.:  The  Heating,  Ventilation  and  Air-conditioning  of  Factories, 

Engineering  Mag.,  Aug.  and  Sept.  1910. 


BUILDINGS  AND  EQUIPMENTS  105 

On  lUumination,  Natural  and  Artificial  — 

Bell,  Louis:  Art  of  Illumination,  N.  Y.,  2d  Ed.,  1913. 

CleweU,  C.  E.:   Factory  Lighting,  X.  Y.,  1913. 

Horstmann,  H.  C,  and  Tousley,  V.  H.:    2vIodern  Illumination:    Theory 

and  Practice,  Chicago,  1912. 
Godinez,  F.  L.:   The  Lighting  Book:   A  Manual  for  the  Layman,  X.  Y., 

1913. 
Elliott,    E,    L.:     Xotes   on   Industrial   Lighting,    Industrial   Engineering, 

Mch.,  Apr.,  May,  June,  Oct.  and  Xov.  1912,  Jan.,  Mch.,  Apr.,  and 

July  1913. 
Estep,   H.  L.:    How  to  Light  the  Workroom,   S3^stem,   Dec.   1911,   pp. 

614-623. 
ElHott,  E.  L. :  Factory  Lighting,  Bulletin  Xo.  13  of  the  Am.  Asso.  for  Labor 

Legislation,  being  Vol.  I,  Xo.  2,  of  the  Am.  Labor  Legislation  Review, 

1909. 
Perrigo,  O.  E.:    INIodern  Machine  Shop  Construction,   Equipment,  and 

Management,  X.  Y.,  1906.     Ch.  XIII,  The  System  of  Lighting. 
Price,  Geo.  M.:    The  Modern  Factory:    Safety,  Sanitation,  and  Welfare, 

N.  Y.,  1914.    Ch.  V,  Light  and  Illumination  in  Factories. 
Transactions  of  The  Illuminating  Engineering  Society,  Easton,  Pa. 
Transactions  of  the  Xational  Electric  Light  Asso.,  N.  Y. 
Transactions  of  the  Am.  Institute  of  Electrical  Engineers,  X.  Y. 
Literature  distributed  gratis  by  The  General  Electric  Co.  of  Schenectady, 

X.  Y.,  The  Cooper-Hewett  Co.  of  Xew  York  City,  The  Detroit  Steel 

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Philadelphia,  and  The  G.  Drouve  Co.  of  Bridgeport,  Conn. 


CHAPTER    VI 
POWER 

It  has  been  said  that,  of  the  thousand  niilHon  dollars  paid 
out  annually  in  the  United  States  for  the  coal  burned  under 
boilers,  from  one-eighth  to  one-fourth  could  be  saved,  if  first- 
class  apparatus  were  used,  and  if  the  principles  accepted  by 
the  engineering  profession  as  controlKng  the  efficiency  of  the 
consumption  of  fuel  were  put  into  practice. 

Power  problems.  —  The  questions  which  arise  in  adminis- 
tering a  power  plant  fall,  broadly  speaking,  into  three  groups. 
The  first  of  these  has  to  do  with  the  purchase  of  fuel  on 
the  basis  of  its  fuel  value,  and  its  appropriateness  for  the 
furnace  in  which  it  is  to  be  used.  A  proper  check  should  be 
kept  upon  the  amounts  of  fuel  received  and  used,  the  en- 
deavor being  to  hold  in  storage  only  such  a  reserve  as 
wdll  insure  regularity  of  operation.  The  second  class  of 
problems  is  concerned  with  the  installation  of  furnaces  and 
boilers,  together  with  a  more  or  less  extensive  equipment 
of  auxiliarj'  apparatus,  such  as  mechanical  stokers,  super- 
heaters, condensers,  water  softeners,  and  mechanical  draft. 
The  operation  of  this  equipment  involves,  among  other 
things,  the  control  of  the  vital  process  of  stoking.  The  tliird 
set  of  problems  is  concerned  with  transmission,  and  involves 
not  only  the  construction  of  a  system  of  shafting,  belting, 
wiring,  and  piping,  but  the  supervision  necessary  to  keep 
this  widel}^  scattered  apparatus  in  a  state  of  efficiency  with 
reference  to  power  absorption. 

Qualities  of  coal.  —  The  customary  way  of  purchasing  coal 
is  to  judge  the  value  of  a  new  fuel  by  one's  impression  of  the 

106 


POWER  107 

district  from  which  it  comes,  bj^  the  personahty  of  the  selling 
agent,  or  by  the  standing  of  concerns  which  are  mentioned  as 
users  of  it.  If  a  new  fuel  is  given  a  test,  its  fate  is  Ukely  to 
turn  upon  its  brightness,  or  the  amount  of  dust  in  the  sample 
car,  or  what  the  firemen  say  of  it. 

The  calorific  power  of  coal  depends  upon  the  number  of  heat 
units  it  will  produce.  The  heat  unit,  known  as  British  thermal 
unit  (B.T.U.),  is  the  amount  of  heat  required  to  raise  one 
pound  of  water  one  degree  in  temperature  —  from  39°  to  40°  F. 
—  at  the  sea  level.  A  fair  range  of  the  thermal  power  of  steam 
coals  is  from  10,000  to  15,000  B.T.U.  per  pound.  The  combus- 
tible element  in  coal  is  divided  into  volatile  and  fixed  carbons. 
The  volatile  carbons  vary  from  5  per  cent  in  hard  coals  to 
between  40  and  60  per  cent  in  soft  coals,  calculating  on  a  dry  coal 
basis.  The  fixed  carbons  range  from  50  per  cent  in  soft  coals 
to  85  per  cent  in  anthracite.  The  market  prices  of  coals  vary 
approximately  with  the  percentage  of  fixed  carbon,  for  the 
reason  that  special  equipment  and  expert  handUng  are  required 
to  obtain  good  results  from  the  volatile  elements.  For  this 
reason  coal  users  who  are  equipped  to  handle  volatile  fuels  will 
usually  find  that  the  cheapest  coal  is  the  best  value  for  them.  A 
rich  soft  coal  carelessly  handled  means  that  as  a  quantity  of 
fresh  fuel  is  thrown  onto  the  fire  by  the  fireman,  great  volumes 
of  gas  will  be  distilled  to  escape  unburned  to  the  air,  while  vol- 
umes of  smoke  will  pass  up  the  chimney  coating  all  flues  and 
boiler  surfaces  with  an  insulating  layer  of  soot.  Coal  contains 
varying  amounts  of  moisture  which  serve  to  lessen  its  value, 
not  only  because  water  is  not  fuel,  but  because  there  is  required 
from  ten  to  fifteen  pounds  of  coal  to  evaporate  one  hundred 
pounds  of  water  in  a  furnace.  Inasmuch  as  the  moisture  ele- 
ment in  coal  may  vary  from  day  to  day,  and  from  one  part  of 
a  stock  pile  to  another,  it  is  necessary  to  make  comparisons  of 
different  fuels  on  a  dry  coal  basis.  Ash  is  earthy  matter  of  no 
fuel  value.  In  commercial  coals  it  varies  from  4  to  25  per  cent. 
A  high-ash  content  increases  the  expense  of  ever}^  operation, 


lOS      ADMIXLSTRATIOX  OF  IXDUSTRIAL   EXTERPRISES 

such  as  cartirig,  stoking,  slicing^  clra\\TDg.  and  dumping.  Coals 
high  in  ash  biun  poorly  because  of  the  obstruction  offered  by 
the  inert  matter.  They  entail  extra  labor  in  cleaning  the  dust 
from  the  flues.  The  importance  of  the  ash  depends  partly 
upon  its  tendency  to  ftise  and  form  a  clinker  which  cements 
itself  into  a  sheet  in  the  lower  part  of  the  bed  and  shuts  out  the 
air  from  the  biuning  fuel  above.  There  are  various  minor  con- 
stituents of  coal,  such  as  sulphiu-  and  phosphorus  which,  if 
present  in  large  quantities,  may  give  trouble  by  attacking  the 
metal  parts  of  the  furnace  and  boiler. 

The  si^e  of  the  lumps  or  particles  of  coal  is  important,  uni- 
formity of  size  being  a  merit.  When  diiierent  sizes  are  used 
together  the  fine  particles  tend  to  sift  into  the  interstices  between 
the  larger  lumps  and  make  a  bed  so  compact  that  air  does  not 
readily  pass  through.  Yery  fine  coal  is  difficult  to  handle:  if 
a  thick  bed  is  used  the  draft  is  poor;  if  a  thin  bed  is  resorted  to 
the  dust  sifts  through  the  grate,  or  spots  bum  out  leaving  holes 
in  the  bed  through  which  the  draft  is  lost.  If  the  draft  is 
strengthened  dust  is  blown  onto  the  flues  and  out  of  the  chimney. 

Specifications.  —  The  scientific  way  of  bm-ing  coal  is  on  the 
basis  of  detailed  specifications.  It  is  as  reasonable  to  buy  coal 
on  analysis  as  it  is  iron  ore  or  metals  or  fertflizer.  The  central 
point  of  a  coal  contract  is  the  agreement  that  the  fuel  shall  be 
paid  for  on  the  basis  of  a  given  number  of  B.T.U.  —  say 
125.000  —  for  one  cent.  In  important  cities  in  the  eastern  part 
of  the  United  States  a  commercial  consumer  will  pay  from  10 
to  12  cents  per  1,000.000  B.T.U.  In  order  to  designate  the 
character  of  the  fuel  to  be  bought,  a  contract  should  contain  a 
guaranteed  approximate  analysis,  and  hmits  of  allowable  varia- 
tion. The  size  of  the  coal  maj^  be  controlled  by  describing  the 
screens  over  which  and  through  which  it  should  pass.  Other 
parts  of  the  contract  wiU  refer  to  dates  of  dehverj-,  and  to  the 
procedure  to  be  followed  in  case  of  non-pert'ormance. 

Effect  of  transponation  on  value.  —  There  is  an  important 
influence  upon  the  relative  values  exerted  by  the  transporta- 


POWER  109 

tion  expense  incurred  in  shipping  coals  of  different  composition 
to  the  place  of  consumption.  The  difference  of  caloric  value 
between  two  fuels  remains  constant  whatever  their  price  or 
location.  The  laid-down  prices  of  two  fuels  tend,  however, 
toward  a  parity  as  the  freight  charge  increases.  If,  for  example, 
two  kinds  of  coal,  one  A  of  13,500  B.T.U.  per  pound,  and  one 
B  of  14,500  B.T.U.,  sell  at  the  mine  for  $1.05  and  $1.25  per 

.        ,  .-,  ,.  r  Tj.        ■       13,500  93.1  ,   -^ 

ton,  respectively,  the  ratio  of  quahty  is  j^^q  or  j^qi  while 
the  ratio  of  prices  is  ]§  or  ^-  The  B.T.U.  of  A  is  93.1 
per  cent  of  the  B.T.U.  of  B,  while  the  mine  price  of  A  is  only 
84  per  cent  of  the  mine  price  of  B.  If  we  assume  that  the 
B.T.U.  represent  the  relative  fuel  values  to  any  individual 
buyer,  it  is  clear  that  A  is  the  better  purchase  at  the  mines. 
If  we  ship  both  coals,  and  pay  $1.50  freight  per  ton  on  each, 
the  price  ratio  is  altered  as  follows: 

105         L50  _  2^  _  92T 
T25  "T"  1.50  ~  2.75  "~    100 

The  price  of  A  becomes  92.7  per  cent  of  the  price  of  B. 
These  prices  are  closely  in  accord  with  the  relative  fuel  values. 
But  if,  however,  we  pay  a  freight  of  $3.00  (which  is  about 
the  average  charge  from  Eastern  coal  fields  to  interior  points  in 
New  England),  the  price  of  A  and  B  are  related  thus: 

U)5         3^  _  4^  _  95^ 
1725  "'"  3.00  —  4.25  ~    100 

The  price  of  A  becomes  95.3  per  cent  of  B,  but  since  the  fuel 
value  remains  93 . 1  per  cent,  the  higher  grade  and  higher  priced 
coal  becomes  the  more  economical  of  the  two.  Transporta- 
tion enhances  the  relative  worth  of  superior  quahties  of  all 
materials. 

Storage  and  handling.  —  The  amount  of  coal  which  should 
be  carried  in  reserve  depends  upon  the  rate  of  consumption,  the 
effect  of  weather  upon  the  type  of  fuel  used,  the  cost  of  storage 
space,  and  the  hability  of  railv/ay  or  mine  strikes  or  other  inter- 
ruptions to  supply.     The  prevaihng  idea  is  that  a  two  weeks' 


no      ADMIXISTRATIOX  OF  IXDUSTRIAL  ENTERPRISES 

supply  is  about  right.  The  best  modern  practice  in  handhng 
consists  of  unloading  from  self-dumping  cars  into  pits  below  the 
track,  automatic  elevation  into  concrete  overhead  bins  in  the 
boiler  house,  and  gra\dt5'  feed  to  the  furnaces.  Some  advantages 
of  such  installation  are  a  sa^dng  of  from  one-fourth  to  one-half 
in  handhng  cost  over  shovehng  and  teaming,  the  preser\'ation 
of  the  coal  dry  and  unfrozen,  safety  from  theft,  and  economy  of 
ground  space. 

Requirements  for  combustion.  —  A  furnace  is  a  device  in 
which  the  combustible  elements  of  coal  are  volatihzed  by  heat, 
and  mixed  at  high  temperatiu'e  with  a  regulated  supph^  of  air, 
to  bring  about  fairly  complete  combustion.  The  essential  con- 
ditions for  efficient  combustion  may  be  indicated  broadly  under 
seven  heads. 

1.  Fuel  should  be  introduced  as  evenlj^  as  possible,  in  order 
that  the  distillation  of  combustible  gases  may  be  uniform.  In 
case  of  hand  firing,  small  amounts  of  coal  should  be  introduced 
frequently  and  spread  evenly  over  the  grates.  The  automatic 
stoker  accomphshes  the  gradual  introduction  of  fuel,  without 
disturbing  the  drafts. 

2.  The  fuel  should  be  of  unifonii  size,  so  that  the  draft  will 
be  uniform  through  the  grate  at  all  points. 

3.  Air  must  be  admitted  in  sufficient  quantities,  that  is  to 
say,  in  proportion  to  the  rate  of  distillation  of  gas  from  the  fuel. 

4.  Ample  space  must  be  allowed  for  the  gases  and  the  air 
to  become  t borough h'  mixed. 

5.  This  mixing  must  take  place  at  a  liigh  temperatm'e,  if 
combustion  is  to  result.  A  more  or  less  enclosed  combustion 
chamber  of  fire  brick  should  be  provided.  The  temperature  of 
combustion  of  carbon  is  from  1600°  to  1800°  F.  The  temper- 
ature of  boiler  surfaces  is  below  400°  F.  It  is  manifest,  there- 
fore, tha,t  if  any  unburned  gases  come  in  contact  with  the  shell 
or  tubes  of  a  boiler  they  will  become  so  cooled  that  combustion 
will  not  take  place,  and  thej'  will  be  lost  in  the  flue  gases.  The 
process  of  evolving  heat  in  gases  by  combustion  must  be  com- 


POWER 


111 


pletely  separated  from  the  process  of  drawing  the  heat  out  of 
these  gases  into  the  boiler.  A  mixing  chamber  can  be  formed 
by  constructing  a  heat-reflecting  roof  over  the  fire  bed,  which 
will  confine  the  fire  in  an  oven.  To  be  certain  that  combustion 
is  completed,  there  should  be  provided  a  special  combustion 
chamber  to  the  rear  of  this  by  hanging  a  tile  roof  from  the 
bottom  tier  of  boiler  flues.     The  length  and  direction  of  the 


Imperfect  Furnace  Design 


The  partly-burned  particles  of  carbon  are  quenched  by  premature  contact 
with  the  cool  surfaces  of  the  boiler,  with  the  result  of  producing  smoke  and 
wasting  fuel. 

travel  of  gas  through  the  flues  can  be  controlled  by  tile  baffles. 
A  contrast  between  good  and  bad  furnace  design  is  presented  in 
Figures  25  and  26. 

By  providing  a  mixing  chamber  the  process  of  combustion  is 
completed  before  the  absorption  of  heat  by  the  boiler  is  begun. 
The  result  is  smokeless  combustion  and  efficient  use  of  fuel. 

6.  Overloads  should  be  avoided  as  far  as  possible.  A  furnace 
designed  to  burn  a  given  amount  of  fuel  in  a  stated  time  is  in 
perfect  balance  only  when  doing  that  quantity  of  work. 


112      ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

7.  The  furnace  and  the  fuel  must  be  adjusted  to  each  other. 
After  a  boiler  room  has  been  equipped,  and  the  proper  type  of 
coal  has  been  decided  upon,  there  should  be  as  httle  variet}' 
as  possible  in  the  fuel  provided. 

Firing  systems.  —  There  are  three  methods  of  hand  firing: 
the  coking  system,  the  alternatmg  system,  and  the  sprmkhng 
system.     The  coking  system  consists  of  piling  the  green  coal  on 


'^^--^^T^TT^jT^^^-^ffixrrc.crt 


Fig.  26.   Good  Furnace  Design 

the  dead  plate  inside  the  door,  or  on  the  front  third  or  fourth 
of  the  grate,  and  allowing  it  to  remam  there  for  20  to  30  mmutes, 
until  the  volatile  hydro-carbons  have  been  driven  off.  Tliis 
coked  fuel  is  then  pushed  back  evenly  over  the  remainder  of 
the  grate,  and  a  new  charge  of  fuel  is  inserted  in  front  as  before. 
To  secure  good  results,  the  air  should  be  admitted  tlu-ough  the 
door,  so  that  it  may  mLx  with  the  gas  driven  oft*  during  the 
coking  process.  The  furnace  should  be  pro^'ided  with  a  low  roof 
to  force  the  air  and  gas  to  travel  backward  close  to  the  hot  fire 
and  be  raised  to  high  temperatm'es.     At  the  rear  of  the  grate 


POWER  113 

it  is  an  advantage  to  have  a  bridge  wall  with  vertical  baffles  to 
ensure  thorough  mixing.  The  coking  system  is  suited  for  bitu- 
minous coals  which  are  rich  in  volatile  matter.  It  cannot  be 
used  with  anthracite  or  non-coking  coals.  This  method  of 
firing  is  little  practised  in  the  United  States,  but  is  used  in 
marine  work  in  all  parts  of  the  world,  and  in  stationary  engine 
practice  in  European  countries. 

The  alternate  system  of  firing  consists  in  replenishing  the  fuel 
first  on  one  side  of  the  grate  and  then  on  the  other.  The  idea 
is  to  avoid  cooling  down  the  entire  bed  at  once.  A  bright  bed 
is  left  on  one  side  to  provide  air  and  highly  heated  gas,  while 
from  the  freshly  covered  side  come  rich  gases  of  lower  temper- 
ature. Precautions  must  be  taken  in  the  construction  of  an 
alternating  furnace  to  insure  the  thorough  mixing  of  the  gases 
of  the  two  sides.     Two  doors  are  required. 

The  sprinkhng  or  spreading  system  consists  of  the  even  dis- 
tribution of  a  thin  charge  of  coal  over  the  entire  grate  surface 
at  frequent  intervals.  The  new  charge  should  especially  repair 
the  thin  spots  in  the  fire,  the  idea  being  to  have  the  bed  offer 
the  same  degree  of  resistance  to  the  passage  of  air  in  all  of  its 
parts.  A  new  charge  should  not  be  spread  until  the  volatile 
elements  have  been  driven  off  the  last  one,  and  the  bed  has 
become  reduced  to  a  porous  layer  of  burning  coke.  This  is  the 
system  aimed  at,  but  not  often  achieved  with  notable  perfec- 
tion, by  common  practice  throughout  the  United  States. 

Firemen's  rules.  —  Firemen  should  be  instructed  to  add 
fuel  frequently  and  in  small  amounts,  so  that  volatile  gases  will 
not  be  liberated  more  rapidly  than  air  can  be  mixed  with  them. 
A  large  mass  of  cold  fuel  thickens  the  bed,  chills  the  fire,  and 
diminishes  the  draft.  A  fireman  who  pokes  a  fire  to  stimulate 
the  burning  of  green  fuel  does  not  understand  his  job.  Poking 
is  properly  slicing,  the  object  of  which  is  to  break  up  cakes  of 
coke  and  clinker.  It  precedes  charging  rather  than  follows  it, 
hastening  the  burning  of  the  bed  down  to  the  point  where 
fresh  fuel  is  called  for.     It  is  bad  practice  to  allow  a  fire  to  run 


114      ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

up  SO  high  that  severe  checking  is  needed :  The  sudden  cutting 
off  of  air  while  there  is  evolution  of  gas  means  wasted  fuel.  A 
skilful  fireman  will  avoid  the  need  of  sudden  checking  by  using 
the  injector  to  regulate  steam  pressure. 

Mechanical  stokers.  —  Stoking  is  a  difficult  art,  being  in 
reaht}^  the  supervision  of  a  complex  chemical  process  of  distilUng 
and  mixing  gases.  But,  as  a  form  of  labor,  it  is  attended  with 
so  many  unpleasant  features  that  it  is  difficult  to  secure  a 
steady  force  of  men  with  sufficient  intelHgence  to  reahze  the 
possibilities  of  the  work.  The  ffi'st  effort  to  solve  the  problem 
by  invention  was  in  1822,  when  a  mechanical  stoker  of  the 
sprinkler  t^-pe  was  brought  out  in  England.  The  first  American 
stoker  was  built  by  Thomas  ]\lurph3'  of  Detroit,  in  1878,  and 
was  a  double  sloping  gi^ate.  ^Mechanical  stokers  ma}^  be  classed 
as  inclined  gi^ates,  chain  gi'ates,  and  underfeed  furnaces.  The 
inchned  grate  wiU  burn  coking  coals,  for  the  bed  is  broken  up 
b}^  the  process  of  shaking  down  the  fuel  from  a  liigher  to  a  lower 
level.  Chain  grates  do  not  break  up  the  bed  but  travel  with  it 
from  front  to  back;  coking  coals  cannot  be  used  on  them.  But 
the  chain  grate  peimits  a  thinner  fire,  and  so  a  lower  grade  of 
fuel.  The  speed  of  the  grate  and  the  thickness  of  the  bed  must 
be  mutualh'  adjusted.  If  the  speed  is  too  fast,  unburned  fuel 
will  be  dumped;  if  too  slow,  the  rear  of  the  grate  will  become 
bare.  Run-of-mine  coal  must  be  bmned  in  a  thick  bed  to  pre- 
vent the  fine  particles  from  falling  through  into  the  ash  pit. 
The  chief  claim  of  the  imderfeed  grate  is  smokelessness.  New 
fuel  is  forced  in  under  the  burning  bed,  so  that  the  particles  of 
carbon  driven  oft'  b^'  the  ffi'st  combustion  are  forced  upward 
thi'ough  the  hot  crown  and  are  gasified.  The  fuel  bed  is  so 
deep  in  underfeed  grates  that  forced  draft  is  required.  The 
ash  remains  a  long  time  in  the  hottest  part  of  the  fire,  so  that 
if  it  is  of  a  fusible  natiue  it  melts  into  a  sohd  chnker. 

The  points  of  advantage  of  a  good  mechanical  stoker  are 
economy  of  labor  (one  fireman  should  handle  from  8  to  10 
stokers),  economy   of   fuel,  abiht}^  to   utilize   low-grade   fuel, 


POWER  115 

increased  efficiency  of  boilers,  and  longer  life  of  boilers.  The 
minimum-sized  plant  which  can  advantageously  use  mechanical 
stokers  is  probably  one  of  500  horse  power. 

Draft.  —  Natural  draft  depends  upon  the  diiference  between 
the  weight  of  a  column  of  warm  air  in  a  chimney  and  the  w^eight 
of  an  equal  volume  of  cool  outside  air.  The  lower  the  temper- 
ature at  which  gases  enter  a  chimney,  the  higher  must  the 
chimney  be  to  ensure  a  given  force  of  draft.  Draft  economy, 
therefore,  balances  the  loss  in  hot  gases  over  against  the  cost 
of  a  tall  chimney.  In  good  practice,  coal  should  not  be  burned 
faster  than  35  to  40  pounds  per  square  foot  of  grate  per  hour; 
and  the  gases  entering  the  flue  should  not  be  over  500°  or  600°  F. 
With  mechanical  draft  expensive  chimneys  can  be  avoided,  at 
the  expense  of  steam  consumption  to  operate  a  fan.  Mechan- 
ical draft  permits  the  use  of  low-grade  fuels;  it  overcomes  the 
retarding  effect  of  an  economizer;  it  permits  overloads  to  be 
more  quickly  taken  care  of;  and  it  permits  of  the  regulation  of 
draft  automatically  by  steam  pressure,  and  independently  of 
temperature  and  barometric  conditions. 

Boiler  design.  —  The  aims  of  boiler  design  are  to  cause  the 
inside  water  and  the  outside  gases  to  flow  in  opposite  directions 
for  the  maximum  travel  at  maximum  speeds,  to  secure  the 
shortest  passage  for  steam  from  its  place  of  origin  to  the  steam 
chest,  to  prevent  excessive  fluctuations  of  pressure  and,  in 
general,  to  pro\dde  a  simple,  durable,  flexible,  and  accessible 
piece  of  apparatus.  The  aim  of  boiler  house  design  is  to  separate 
engines  and  boilers,  and  secure  a  system  of  steam  mains  which 
is  as  short  as  is  consistent  with  the  abihty  to  cut  out  any  unit 
for  cleaning  or  repairs. 

Economizers.  —  An  economizer  is  a  collection  of  heavy, 
vertical,  feed-water  pipes,  located  between  the  boiler  and  the 
chimney.  It  is  used  for  the  purpose  of  saving  a  portion  of  the 
heat  which  remains  in  the  gases  after  they  have  passed  beyond 
the  boiler  surfaces.  If  an  economizer  has  the  capacity  to  reduce 
the  temperature  of  the  flue  gases  from  600°  to  300°  F.  it  will  be 


116     ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

able  to  heat  the  feed  water  to  150°  F.,  and  effect  a  15  per  cent 
economy  in  fuel.  Economizers  increase  boiler  capacity  at  a 
less  cost  than  boiler  additions.  They  help  to  care  for  sudden 
overloads  by  providing  a  quantity  of  parth^-heated  water 
which  can  be  drawn  upon.  And  they  serve  to  precipitate  a 
large  part  of  the  scale  in  a  place  where  it  can  be  easily  disposed 
of. 

Shafting  losses.  —  Ordinary  practice  in  the  transmission  of 
power  by  belting  and  shafting  is  poor.  It  is  calculated  that 
losses  average  from  35  to  45  per  cent  of  the  power  developed 
by  the  engine.  These  wastes  result  from  excessive  journal 
friction  produced,  (a),  by  incorrect  design,  as  by  the  use  of 
high  stresses  with  large  pulleys  on  heavy,  slow-moving  shafting; 
(b),  by  incorrect  arrangement,  as  in  the  taking  off  of  large 
amounts  of  power  at  the  ends  of  the  shafting;  (c),  by  bad 
aHgnment,  which  means  that  the  shaft  not  only  rolls  in  its 
bearings  but  is  twisted  by  them. 

Losses  may  be  reduced  by  the  use  of  hollow  shafting  of  small 
dimension,  revolving  at  high  speed,  and  fitted  with  small 
pulleys.  Alignment,  in  good  practice,  should  never  show  a 
deflection  of  more  than  y^^  oi  an  inch  per  foot.  By  the  use  of 
roller  bearings  as  much  as  one-third  of  the  shafting  losses  may 
be  avoided:  by  the  use  of  ball  bearings,  two-thirds  may  be 
avoided. 

Belting.  —  In  a  notable  report  presented  before  the  American 
Society  of  Mechanical  Engineers  in  1894,  Mr.  F.  W.  Taylor, 
the  founder  of  scientific  management,  communicated  the 
results  of  nine  years  of  continuous  experimentation  with  belting. 
Among  his  conclusions  were  the  following  points. 

1.  "The  number  of  square  feet  of  double  belt  passing  around 
a  pulley  per  minute  to  transmit  one  horse  power  is,  for  oak 
tanned  and  fulled  leather  belts,  80  square  feet,  for  other  types 
of  leather  belts  and  6  to  7  ply  rubber  belts,  90  square  feet. 

2.  ''The  belt  speed  for  maximum  economy  should  be  from 
4,000  to  4,500  feet  per  minute. 


POWER  117 

3.  ''The  best  distance  from  centre  to  centre  of  shafts  is 
from  20  to  25  feet. 

4.  ''The  faces  of  pulleys  should  be  about  25  per  cent  wider 
than  their  belts. 

5.  "When  it  is  necessary  to  run  night  and  da}^  through  the 
week  without  stopping,  each  important  belt  should  be  supphed 
with  an  idler  pulley  which  can  be  tightened  upon  it  while  run- 
ning, in  case  of  sHp. 

6.  "Idler  pulleys  work  most  satisfactorily  when  located  on 
the  slack  side  of  the  belt,  about  one-quarter  way  from  the 
driving  pulley. 

7.  "Belts  are  more  durable  and  work  more  satisfactorily 
made  narrow  and  thick,  rather  than  wide  and  thin. 

8.  "It  is  advisable  to  use  double  belts  on  pullej^s  12  inches 
diameter  or  larger.  It  is  advisable  to  use  triple  belts  on  pulleys 
20  inches  diameter  or  larger.  It  is  advisable  to  use  quadruple 
belts  on  pulleys  30  inches  diameter  or  larger. 

9.  "As  belts  increase  in  width  they  should  also  be  made 
thicker. 

10.  "The  ends  of  the  belt  should  be  fastened  together  by 
sphcing  and  cementing,  instead  of  lacing,  wiring,  or  using  hooks 
or  clamps  of  any  kind. 

11.  "Belts  should  be  cleaned  and  greased  every  five  or  six 
months. 

12.  "Belts  should  be  tightened  and  repaired  and  cared  for 
out  of  working  hours  by  one  man  as  far  as  practicable;  careful 
inspection  as  to  their  condition  being  made  at  regular  intervals. 

13.  "The  most  economical  average  total  load  for  double 
belting  is  65  to  73  lbs.  per  inch  of  width,  i.e.,  200  to  225  lbs.  per 
square  inch  section.  This  corresponds  to  an  effective  pulling 
power  of  30  lbs.  per  inch  of  width. 

14.  "The  total  life  of  belting,  cost  of  maintenance  and 
repairs  and  the  interruptions  to  manufacture  caused  by  belts, 
are  dependent  upon  the  total  load  to  which  the  belts  are  sub- 
jected more  than  upon  any  other  condition.     The  other  con- 


118      ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

ditions  chiefly  affecting  the  durabiUty  of  belting  being,  1st, 
whether  sphced,  or  fastened  with  lacing  or  belt  hooks;  2d, 
whether  they  are  properly  greased  and  kept  clean  and  free  from 
machine  oil;  3d,  the  speed  at  w^hich  they  run. 

15.  ''The  speed  at  which  belting  runs  has  comparatively 
httle  effect  on  its  life  until  it  passes  2,500  to  3,000  feet  per 
minute."  ^ 

Electric  drive.  —  When  electric  transmission  is  used  to  con- 
vey energy  to  motors  attached  to  hnes  of  shafting  by  which 
groups  of  machines  are  operated,  the  system  is  called  group 
drive.  When  energy  is  transmitted  to  motors  attached  directly 
to  mdividual  machines,  the  system  is  individual  drive.  Group 
drive  is  best  where  a  number  of  small  machines  —  below  5  h.p. 
each  —  are  to  be  driven  at  like  speed  and  with  httle  variation 
of  load,  as  in  spinning,  weaving,  or  shoe  manufacturing.  Indi- 
vidual drive  is  better  suited  for  large  machines,  such  as  cranes, 
presses,  and  large  planers,  w^hich  are  to  be  used  intermittently,^ 
and  with  great  range  of  speed  and  load. 

Advantages  of  electric  transmission.  —  The  advantages  of 
the  use  of  electric  power  in  mills  and  factories  have  been  enu- 
merated with  excellent  thoroughness  by  Prof.  F.  B.  Crocker,^ 
as  follows: 

1.  A  real  economy  in  the  amount  of  power  used. 

2.  A  reduction  in  cost  of  the  construction  of  buildings,  which 
can  be  lighter,  owing  to  the  fact  that  there  is  no  need  to  install 
heavy  hnes  of  shafting  and  pulleys. 

3.  A  reduction  in  expense  of  service,  such  as  oiling,  deprecia- 
tion, etc. 

^  Notes  on  Belting.  Trans,  of  Am.  Soc.  of  Mech.  Engineers,  Vol.  15 
(1894),  No.  618,  pp.  204-259. 

2  To  illustrate  the  intermittent  use  of  power  in  engineering  establish- 
ments, the  case  of  the  Milwaukee  Bridge  Co.  may  be  cited.  With  23 
individual  motors  aggregating  149  horse  power,  they  found  it  necessary  to 
use  a  central  boiler  of  75  horse  power  only. 

2  The  Electric  Distribution  of  Power  in  Workshops,  Journ.  of  Franklin 
Inst.,  Phila.,  Jan.  1901,  Vol.  51,  pp.  1-7. 


POWER  119 

4.  More  efficient  arrangement  of  machines  and  tools,  which 
need  no  longer  be  placed  in  straight  lines  parallel  with  the 
shafting,  but  can  be  located  exactly  as  desired. 

5.  Access  to  the  machinery  is  easier  from  the  suppression 
of  belts  and  pulleys. 

6.  Greater  cleanliness,  as  there  is  less  dust  and  no  scattering 
of  oil  or  steam,  etc. 

7.  Hygienic  conditions  are  improved,  owing  to  the  diminu- 
tion of  dust  and  dirt;  better  light,  owing  to  the  absence  of 
shafting,  pulleys,  etc.;  the  lessening  of  noise,  etc. 

8.  Greater  ease  of  placing  different  shops  in  separate  build- 
ings, and  in  locating  them  according  to  the  strict  requirements 
of  the  work,  and  without  regard  to  the  necessities  of  the  motive 
power. 

9.  Greater  facility  in  the  increase  of  establishments. 

10.  Localization  of  accidents  due  to  motive  power,  with  con- 
sequent less  injury  to  individuals,  and  the  stoppage  of  work 
only  at  the  point  where  an  individual  motor  is  incapacitated. 

11.  Greater  control  of  the  speed  of  the  tools. 

12.  A  marked  increase  in  the  product  of  any  given  establish- 
ment. 

Whether  to  produce  or  to  buy  power.  —  The  question  whether 
to  buy  or  to  produce  power  usually  brings  into  comparison  the 
project  of  erecting  a  private  steam  plant  with  that  of  purchas- 
ing electricity  from  a  public  service  corporation.  Into  this 
question  other  things  than  the  use  of  power  may  enter.  If 
live  steam  is  needed  in  any  process,  or  if  exhaust  steam  can  be 
used  to  advantage  for  heating,  it  may  incline  the  scales  in  favor 
of  a  private  plant.  As  a  pure  power  problem,  however,  the 
general  relation  between  central  station  prices  and  private 
plant  costs  is  determined  by  a  number  of  factors,  prominent 
among  which  are  the  local  cost  of  coal,  and  the  load  factors  of 
producer  and  consumer. 

The  lower  the  price  of  coal  the  greater  the  advantage  enjoyed 
by  the  private  plant.     The  reason  for  this  is  that  when  the  cost 


120     ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

of  coal  is  low,  the  price  of  power  delivered  from  a  central  station 
is  strongly  influenced  b^^  the  charges  which  have  to  be  added 
for  the  use  of  the  poles,  wires,  and  meters  of  the  distributive 
sj^stem,  and  the  ser^dces  of  accounting,  meter  reading,  etc. 
When  the  cost  of  coal  is  high,  these  distributive  and  incidental 
expenses  dechne  relatively,  and  the  fuel  item  becomes  important 
enough  so  that  the  superior  efficienc}'  of  the  large  power  plant 
is  able  to  exert  a  palpable  effect  upon  the  price. 

The  load  factor  is  the  ratio  of  the  average  load  to  the  maxi- 
mum load.  When  the  average  load  of  a  central  power  station 
is  low  in  comparison  with  its  maximum  load,  the  company  is 
apt  to  offer  attractive  prices  to  consumers  for  electricity  to  be 
used  at  hours  other  than  those  of  maximum  load.  If  the  con- 
suming plant  has  a  low  load  factor,  the  cost  of  producing  its 
own  power  will  be  high.  The  variation  of  cost  with  load  factor 
is  such  that  when  the  average  load  is  but  one-half  the  maximum 
load  (designated  as  load  factor  of  50  per  cent)  the  cost  of  pro- 
ducing power  will  be  50  per  cent  greater  than  when  the  use  of 
power  is  uniform.  With  a  load  factor  of  33.3  per  cent,  the  cost 
of  power  will  be  doubled.  The  most  advantageous  condition 
for  buying  power  exists  when  the  purchaser  wants  the  most 
power  during  the  hours  when  the  central  station  has  the  greatest 
surplus  capacity  for  sale 

Power  and  mill  design.  -  -  In  the  daj^s  when  direct-connected 
water  wheels  were  the  rehance  of  large  manufacturing  estabhsh- 
ments,  mill  architecture  and  yard  layout  were  influenced  by 
the  cramped  spaces  into  which  factories  squeezed  themselves 
along  the  river  banks.  Streams  of  rapid  fall  commonly  have 
deep  beds,  and  Uttle  level  ground  between  the  high  banks  and 
the  water's  edge.  The  narrow  sites  of  the  old  mills,  together 
with  the  restrictions  imposed  upon  length  by  the  heaw, 
slow-moving  shafting,  made  necessary  upper  stories,  and 
confirmed  the  first  mill  tj^pe  as  a  narrow,  tall  structure. 

When  the  production  of  large  fly  wheels  began  to  fairly  reduce 
the  pulsations  of  the  steam  engine,  and  the  CorUss  method  of 


POWER  121 

regulating  the  engine  by  varying  the  point  of  cut-off  at  last 
made  this  source  of  energy  steady  enough  for  spinning  and 
weaving,  the  manufacturers  found  their  mills  liberated  from 
the  thraldom  of  the  waterway.  The  imperfection  of  belts  and 
the  shortness  of  lines  of  shafting  still  kept  the  shops  huddled 
closely  about  the  power  plant,  however.  With  the  advent  of 
electric  transmission  all  dynamic  connection  with  the  power 
house  is  at  length  severed,  and  the  architect  is  free  to  group 
his  departments  on  new  principles  of  arrangement.  Other  fac- 
tors have  come  to  the  front,  and  discussions  now  turn  on 
construction  costs,  routing  diagrams,  fire  hazards,  and  welfare 
features. 

Administration.  —  The  general  administrator  needs,  at  least, 
a  broad  familiarity  with  the  standards  employed  in  measm-ing 
efficiency  in  power  production.  He  should  know  whether 
14,000  B.T.U.  per  pound  for  coal  with  35  per  cent  fixed  carbon 
and  10  per  cent  ash  means  a  good  steam  coal  or  not,  whether 
10  pounds  of  water  evaporated  per  pound  of  coal  consumed 
means  good  boiler  performance  or  not,  and  whether  20  pounds 
of  steam  per  horse-power  hour  for  a  simple  Corliss  engine  with 
condenser  is  good  work  or  not.  He  should  understand  some- 
thing of  coal  specifications.  It  might  be  useful  to  liim  to  know 
the  significance  of  changes  in  engine-room  indicator  diagrams. 
He  should  exact  regular  reports  of  the  inspection  of  shafting 
and  belting,  and  should  expect  repairs  to  be  made  invariably 
in  advance  of  breakdowns. 

BIBLIOGRAPHY 

Kent,  Wm.:    Steam  Boiler  Economy,  N.  Y.,  1901. 

Peabody,  C.  H.,  and  iMiUer,  E.  F. :    Steam  Boilers,  N.  Y.,  2d  Ed.,  1912. 

Chapter  on  Combustion. 
Becker,  O.  M.,  and  Lees,  W.  J. :  Producing  Power  at  Lowest  Cost,  Factory, 

Nov.  1907  to  Apr.  1908  incl. 
Bement,  A.:    Some  Results  Due  to  Improvement  in  Boiler  and  Furnace 

Design,  Trans,  of  Western  Society  of  Engineers,  1908,  Vol.  13,  pp. 

209-282. 


122      ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

Webber,  W.  O.:  Gas  Producer  and  Gas  Engine  Plants,  Iron  Age,  Mch.  16, 
1911. 

Webber,  W.  O.:  Comparative  Costs  of  Gasoline,  Gas,  Steam,  and  Elec- 
tricity for  Small  Powers,  Engineering  News,  Aug.  15,  1907,  p.  159. 

Duncan,  John  C:  The  Principles  of  Industrial  Management,  N.  Y.,  1911. 
Ch.  XII,  The  Power  Problem. 

Randall,  D.  T.:  The  Purchase  of  Coal  under  Government  and  Commer- 
cial Specifications  on  the  Basis  of  its  Heating  Value,  Bulletin  Xo. 
339  of  The  U.  S.  Geological  Survey,  Washington,  D.  C,  1908. 

Randall,  D.  T.:  The  Burning  of  Coal  Without  Smoke  in  Boiler  Plants, 
Bulletin  No.  334  of  The  U.  S.  Geological  Survey,  Washington,  D.  C, 
1908. 

Burrows,  J.  S.:  Results  of  Purchasing  Coal  under  Government  Specifica- 
tions, Bulletin  No.  378  of  The  U.  S.  Geological  Survey,  Washington, 
D.  C,  1909. 

Hibner,  A.  E.:  The  Cost  of  Industrial  Power,  Proc.  of  Am.  Inst.  Electrical 
Eng.,  Mch.  10,  1911,  pp.  485-503. 

Taylor,  F.  W.:  Notes  on  Belting,  Trans,  of  Am.  Soc.  of  Mech.  Eng.,  1894, 
Vol.  15,  No.  618,  pp.  204-259. 

Smith,  Robt.  H.:  Commercial  Economy  in  Steam  and  Other  Thermal 
Power  Plants  as  Dependent  upon  Physical  Efficiency,  Capital  Charges, 
and  Working  Costs,  London,  1905. 


CHAPTER    VII 
ADMINISTRATION 

Administrative  History 

The  history  of  the  last  century  of  American  industry,  con- 
sidered from  the  point  of  view  of  administration,  may  be  divided 
into  three  periods;  the  day  of  the  pioneer,  the  period  of  the 
engineer,  and  the  newly-opened  epoch  of  the  administrator. 

The  pioneer  period.  —  The  first  period  was,  for  the  eastern 
portion  of  the  United  States,  a  time  of  mixed  farming  and  petty 
shop  keeping,  made  significant  by  the  gradual  growth  of  the 
shops  of  mechanics  into  small  manufacturing  estabhshments, 
and  enlivened  by  the  dashing  seamanship  and  venturesome 
foreign  trading  of  the  merchant  marine.  In  the  West  it  was  the 
day  of  the  pioneers  who  waggoned  their  way  to  the  frontier, 
built  cabins  of  logs,  cut  down  the  timber,  split  the  rails  for 
fences,  cleared  the  fields,  surveyed  the  roads,  established  local 
governments,  and  did  all  the  many  kinds  of  heavy  work 
required  to  convert  the  wilderness  into  a  habitation  fit  for 
civilized  man,  and  to  make  simple  beginnings  in  the  basic 
arts  and  crafts. 

Throughout  the  country  there  prevailed  a  condition  of 
individuahstic  effort.  Every  man's  business  was  his  private 
affair.  Methods  were  crude,  and  reputations  were  local.  It 
was  rather  good  health  and  native  shrewdness  which  brought 
success  than  systematic  knowledge  or  far-reaching  policies. 
As  the  times  were  slow  moving,  they  called  for  patience.  As 
the  methods  were  those  of  trial  and  error,  they  emphasized 
tenacity  of  purpose.     The  economic  virtues  extolled  were  self- 

123 


124      ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

reliance  and  such  basic  things  as  industry,  economy,  and 
freedom  from  debt.  The  representative  thinker  of  this  period 
was  Benjamin  Franklin,  whose  terse  sentences,  put  into  the 
mouth  of  "Poor  Richard,''  expressed  the  prevailing  philosophy 
of  the  day.  The  most  widely  known  sentence  of  Franklin  is, 
•'Honesty  is  the  best  pohcy."  Of  debt  he  said,  "Think  what 
you  do  when  you  run  into  debt :  you  give  to  another  power  over 
yom*  Hberty."  ^  He  both  practiced  and  preached  fi-ugahty  and 
industiy.  "Take  care  of  the  pence,  the  pounds  will  take  care  of 
themselves."  "A  small  leak  will  sink  a  gi-eat  ship."  "It  is 
hard  for  an  empty  bag  to  stand  upright."  "A  shilling  spent 
idly  by  a  fool  may  be  picked  up  by  a  wiser  person  who  knows 
better  what  to  do  with,  it :  it  is,  therefore,  not  lost."  "Dihgence 
is  the  mother  of  good  luck."  "The  used  key  is  always  bright." 
"He  that  Hves  on  hopes  will  die  fasting."  "Since  thou  art  not 
sm'e  of  a  minute,  thi-ow  not  away  an  horn*."  "The  way  to 
wealth  is  as  plain  as  the  way  to  market.  It  depends  chiefly  on 
two  words,  industiy  and  frugahty."  Thus  was  laid  what  may 
be  called  the  foimdation  com'se  of  the  structm-e  of  business 
pohcy.  Laid  with  maxims  of  an  emphatically  personal  system 
of  economics. 

The  period  of  the  inventors  and  the  engineers.  —  The  sec- 
ond period  was  inaugm'ated  by  the  inventors  and  builders.  A 
small  group  of  colonial  inventors,  including  Fulton,  Frankhn.  Eli 
W'liitney,  Samuel  Slater,  John  Stevens,  and  that  universal  but 
neglected  genius.  Oliver  Evans,  struggled  against  the  handi- 
caps of  crude  apparatus,  small  capital,  and  defective  patent 
laws.  With  the  coming  into  prominence  of  such  men  as  Thomas 
Blanchard.  S.  F.  B.  Morse,  and  EHas  Howe,  there  began  a 
succession  of  mechanical  geniuses  wliich  has  been  continuous 
to  the  present  day.  To  it  belongs  Peter  Cooper,  ii'on  manu- 
facturer and  builder  of  the  first  American  locomotive,  Geo.  H. 
CorUss,  the  perfecter  of  the  steam  engine.  Obed  Hussey  and 
Cyrus  ^IcCormick,  inventors  of  the  reaping  machine.  James  B. 
1  This  refers  to  imprisonment  for  debt. 


ADMINISTRA  TION  1 25 

Eads,  first  American  builder  of  iron-clads  and  great  steel 
bridges  and  the  inventor  of  the  jetty  system,  Alex.  L.  HoUey, 
perfecter  of  water-works  machinery,  and  John  Ericsson,  inven- 
tor of  the  screw  propellor  and  the  hot-air  engine  and  builder  of 
the  IMonitor.  To  them,  and  men  like  them,  it  is  due  that  the 
canals  and  trunk  railways  were  built,  that  agricultural  imple- 
ments were  de\dsed  to  handle  the  immense  farm  areas  of  the 
West,  that  the  colonial  iron-working  shops  grew  into  factories, 
that  the  principal  machine-tools  were  perfected  to  accurate 
and  semi-automatic  operation,  and  that  the  principle  of  inter- 
changeable mechanism  was  perfected  and  given  to  the  world. 

As  the  task  of  bringing  physical  agencies  to  the  service  of 
industry  has  reached  a  certain  degree  of  intricacy,  the  inventor 
has  been  progressively  supplemented  by  the  engineer,  whose 
advent  means  that  to  the  inspiration  of  native  talent  there 
must  be  added  the  exact  knowledge  and  certain  power  derived 
from  systematic  training  in  engineering  science.  The  engineer 
is  the  first  scientifically  trained  man  to  be  introduced  into  indus- 
try. He  is  the  first  representative  of  science  to  come  into  con- 
tact with  the  autocratic  rule  of  the  practical  man,  and  to  begin 
the  process  of  sifting  methods  derived  from  tradition  with 
the  instrument  of  controlled  experiment.  With  his  coming, 
and  through  his  influence^  there  has  been  set  up  in  industry 
new  standards  as  to  accuracy  and  completeness  of  knowledge, 
new  conceptions  of  natural  and  economic  law,  new  ideas  as  to 
the  use  of  records  and  standards,  and  a  new  practice  as  to  pre- 
liminarj^  preparation,  standardization,  and  the  close  coordina- 
tion of  functioning  parts.  Admiration  for  these  results  has 
generated  a  demand  that,  in  another  department  of  industry 
there  should  be  introduced  something  which  mighty  by  analogy, 
be  called  ''human  engineering." 

The  Captains  of  Industry.  —  While  pioneering  is  not  yet 
entirely  over,  and  while  inventing  and  the  applying  of  engineer- 
ing control  are  still  important,  we  have  passed  into  a  period 
characterized  bj^  the  prominence  of  questions  of  a  purely  admin- 


126     ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

istrative  character.  Our  first  general  administrators,  now  so 
often  referred  to  as  the  Captains  of  Industry,  had  set  before 
them  an  economic  task  of  perplexing  variety.  Most  of  them 
were  obliged  to  support  themselves  from  an  early  age.  With 
little  schooling,  they  picked  up  the  rudiments  of  a  general  and 
trade  education  as  the}^  went  along.  They  gathered  together 
the  small  savings,  and  then  the  larger  profits,  by  which  their  for- 
tunes were  consolidated  and  their  economic  power  as  proprietors 
acquired.  As  their  interests  grew,  and  while  under  the  pressure 
of  current  duties,  they  had  to  learn  by  experience  the  execu- 
tive's art,  and  catch  such  glimpses  as  they  could  of  the  under- 
l3'ing  principles  of  administration  upon  which  that  art  rests. 
To  do  all  these  things,  and  do  them  so  well  that  the  solutions 
could  set  a  new  standard  was  so  difficult  that  few,  even  of  our 
richly  gifted  race,  achieved  notable  success.  Such  a  struggle 
called  not  only  for  all-round  genius,  but  for  an  aggressive  tem- 
per like  that  of  the  knights  of  the  Middle  Ages,  or  the  con- 
dottieri  of  the  Italian  Renaissance.  The  number  of  men  capable 
of  handling  large  affairs  without  conspicuous  flaws  of  polic}^ 
has  been  small.  If  one  searches  the  records  of  insolvencies  and 
bankruptcies  and  suits  at  dissolution,  one  is  able  to  gain  some 
conception  of  the  toll  exacted  by  the  amateur  administrator. 
The  wastes  have  been  those  of  a  rude  struggle  for  the  survival 
of  the  fittest.  There  has  been  enough  hard  work  done.  In- 
deed, it  may  be  doubted  whether  any  nation  has  ever  worked 
harder,  more  continuously,  and  even  feverishly,  than  America 
during  the  recent  past.  What  has  been  needed  is  not  harder 
work,  nor  longer  hours,  but  effort  made  more  effective  tlirough 
the  guidance  of  general  principles  and  a  comprehensive  plan. 

The  modern  administrator.  —  Through  the  work  of  previous 
generations  tliis  age  comes  into  the  possession  of  such  a  vast 
accumulated  wealth,  and  such  powerful  agencies  of  production, 
that  the  question  of  administering  these  instrumentalities  in 
the  interest  of  human  welfare  becomes  the  leading  one.  As  the 
engineers,  or  technical  executives,  learned  to  control  physical 


ADMINISTRA  TJON  127 

resoui'ces  by  science,  it  now  remains  for  the  administrators,  or 
general  executives,  to  control  the  human  factors  in  industry  in 
accordance  with  the  fundamental  principles  of  human  nature. 
The  reference  in  one  case  is  to  the  natural  sciences;  in  the  other, 
it  is  to  the  social  sciences,  supplemented  by  phj^siology  and 
psychology.  With  no  less  respect  for  individual  efficiency 
than  when  Frankhn's  maxims  were  coined,  modern  industry, 
which  unites  many  persons  in  joint  enterprises  and  engages 
them  in  a  highly  social  process,  requires  an  outfit  of  social 
standards.  The  emphatic  words  were  once  independence, 
and  at  a  later  time  accuracy;  they  are  now  the  square  deal,  . 
liberty,  cooperation,  courtesy,  emulation,  discipline,  profes-  f 
sional  pride,  and  self-expression.  -"  Ij . 

The  principles  which  are  required  for  the  future  guidance  of 
general  administrators  will  be  formulated  in  part  from  the 
study  of  the  successes  and  shortcomings  of  our  Captains  of 
Industry.  The  fives  of  such  men  as  William  Morris,  Stephen 
Girard,  A.  T.  Stewart,  George  Peabody,  J.  J.  Astor,  Cornelius 
Vanderbilt,  Jay  Cooke,  Oakes  Ames,  and  Henry  ViUard  will 
be  examined,  as  well  as  of  many  other  men  of  later  date,  whose 
names  are  now  household  words.  This  examination  has,  indeed, 
already  begun,  but  in  so  destructive  a  spirit  as  to  earn  for 
itself  the  sobriquet  '^muck-raking." 

Business  administration  has,  however,  in  part  outgrown  the 
limits  of  private  affairs  and  become  a  branch  of  a  much  broader 
social  art  of  conducting  joint  affairs.  It  may,  therefore,  look 
for  inspiration  in  a  wider  field,  and  turn  with  profit  to  the 
history  of  all  forms  of  joint  effort.  Military  strategy  will 
yield  to  it  rules  for  strenuous  efficiency;  statesmanship  will 
sketch  for  it  a  broad  philosophy;  diplomacy  will  impart  the 
secret  of  attaining  harmony.^  Profitable  study  may  be  given 
to  the  methods  in  war  of  such  men  as  Frederick  the  Great, 

^  For  the  further  development  of  the  contributions  of  these  subjects  to 
business  administration,  see  the  Author's  work  entitled,  The  Business 
Administrator:    His  Models  in  War,  Statecraft,  and  Science,  N.  Y.,  1914. 


128     ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

Napoleon,  Wellington,  ^'on  Clausewitz,  A'on  ^loltke,  Lee,  and 
Grant.  In  statesmanship  the  principles  of  ■MachiaveUi,  Riche- 
heu,  Peter  the  Great,  Pitt,  Bismarck,  Cavom-,  Washington,  and 
Lincohi  will  demand  consideration.  In  diplomacy  the  balance 
and  finish  of  Su'  Philip  Sidney.  CastigUone,  Chesterfield,  ^letter- 
nich,  TalleATand,  and  Hay  will  challenge  the  emulation  of  the 
business  leader.  And  so  the  executive  engaged  in  industrial 
affairs  may  be  brought  into  that  great  company  of  leaders  who, 
as  Goethe  says,  "By  deeds  and  actions  give  laws  and  rules." 


The  American  Setting 

There  are  many  reasons  why  America  should  now  make  as 
important  a  contribution  to  the  science  of  management  as  it 
made  at  an  earlier  period  to  mechanical  progress. 

The  new  environment.  —  This  country  enjoys  in  industiy, 
as  in  every  other  department  of  hfe,  the  stimulation  of  a  new 
en^-ii-omiient  upon  minds  trained  in  old  world  s^^stems  of 
thought.  If  the  historical  sense  is  httle  developed  with  us,  and 
if  appreciation  of  the  value  of  continuity  in  evolution  is  lacking, 
the  omission  only  senses  to  stimulate  decisive  thmking  by  bring- 
ing institutions  and  practices  more  promptly  and  unceremoni- 
ously into  contact  with  the  chief  touchstone  of  value,  nameh^, 
present  utihty. 

Opportunity.  —  In  America,  the  great  natural  regions,  with 
then'  phj'sical  resources,  and  the  many  nationahties  with  their 
diverse  contributions  to  culture,  have  made  an  arena  for  a 
large-minded  imagination  type  of  industrial  leadership.  The 
possibihty  of  viewmg  accomphshiuents  as  the  mere  beginnings 
of  future  empires  of  industry,  and  hence  as  something  of  mys- 
terious potentiality,  has  endowed  busmess  poUcies  vrith  a  dra- 
matic excitmg  character,  which  seizes  the  attention,  arouses  the 
faculties  and  leads  men  to  tln-ow  themselves  into  affairs  with 
an  intensity  which  petty  and  humdrimi  conditions  could 
never  evoke. 


ADMINISTRATION  129 

Large-scale  operations.  —  Our  extensive  domestic  market 
has  made  possible  the  organization  of  businesses  on  the  largest 
scale.  This  elaboration  has  so  magnified  the  agencies  employed 
as  to  bring  into  notice  matters  which,  in  miniature,  would 
have  escaped  attention.  The  factories  of  1910  were  approxi- 
mately 50  per  cent  larger  than  those  of  1900.  The  average 
manufacturing  institution  of  1900  was  two  and  one-half  times 
as  large  as  that  of  1870,  and  five  times  as  large  as  that  of  1850. 
IMan}^  of  the  establishments  now  conspicuous  for  large-scale 
operations  are  from  20  to  50  times  as  large  as  their  predecessors 
of  the  periods  mentioned.  By  large-scale  operations,  the 
factors  determining  efficiency  are  disentangled  somewhat  as 
the  parts  of  a  complex  living  tissue  are  made  distinct  by  the 
magnification  of  a  microscope.  Distributive  campaigns  have 
grown  so  large  that  details  such  as  the  periodicity  of  a  follow-up, 
or  the  exact  weight  of  a  catalog,  have  been  studied  to  an  extent 
causing  surprise  elsewhere.  In  the  accounting  of  great  cor- 
porations, the  elements  of  intangible  property,  which  in  small 
affairs  remain  undefined,  are  so  important  as  to  have  called 
into  existence  what  amounts  to  a  distinct  subdivision  of  the 
science  of  valuation.  Where  a  single  administrator  could  rub 
along  b}^  intuition,  the  widely  separated  and  much  specialized 
officers  of  a  great  staff  have  been  obhged  to  elaborate  the  rules 
of  action  and  give  them  permanent  record  in  books  of  instruction. 

Distinction  between  capitalist  and  administrator.  —  The 
work  of  the  administrator  is  beginning  to  be  separate  enough 
from  that  of  the  capitalist  so  that  it  is  possible  to  perceive  that 
the  true  art  of  administration  is  a  thing  which  is  in  many  ways 
distinct  from  the  current  process  of  acquiring  a  private  fortune. 
We  have  long  been  familiar  with  the  distinction  between  labor 
and  capital:  the  two  elements  thrust  widely  apart  by  the 
introduction  of  the  factory  sj^stem.  But  we  have  not  so  clearly 
seen  that  this  system  is  separating  the  administrator  from  the 
capitalist.  Property  right  is  a  slow  thing  to  move,  hampered  as 
it  is  by  much  definition  in  books  of  record,  and  impeded  by  the 


130      ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

dead  weight  of  vested  interests;  but  the  art  of  administration 
is  a  thing  of  active  change,  responding  to  the  forward  reaching 
of  natural  leaders  in  the  prime  of  Hfe  toward  ideals.  So  long 
as  we  have  thought  of  owner-managers,  we  have  confused 
administration  with  the  economist's  ''risk-taking,"  and  the 
business  man's  ''money-making." 

The  use  of  the  corporate  form  of  business  has,  however,  been 
rapidly  bringing  about  a  distinction  between  ownership  and 
administration.  The  American  stockholder  exercises  very 
httle  direct  influence  upon  administrative  poHcies.  He  em- 
powers the  directors  to  represent  him;  the  directors,  acting 
usually  through  a  small  executive  committee  of  their  members, 
place  matters  largely  in  the  hands  of  the  elected  officers;  these, 
in  turn,  delegate  again  and  again  down  the  successive  ranks 
of  the  administrative  hne.  The  result  is  that  we  now  have,  in 
great  businesses,  three  distinct  interests:  namely,  a  body  of 
investors  who  own  the  securities,  a  body  of  operatives  who  per- 
form the  routine  tasks  and,  standing  between  these  two,  a 
body  of  administrators. 

Professional  feeling.  —  For  the  present,  no  doubt,  the 
administrator  looks  upon  himself  chiefly  as  the  representative 
of  the  investors,  and  takes  the  traditional  capitalistic  attitude. 
But  he  is  fast  awakening  to  a  consciousness  of  his  distinctive 
function,  and  is  learning  to  think  independently,  and  formulate 
standards  which  are  purely  administrative.  The  adminis- 
trative group  finds  itself  in  a  pivotal  position  as  the  trustee  of 
the  property  of  investors,  as  the  teacher  and  leader  of  the  oper- 
ative force,  and  as  a  delegate  responsible  for  the  preservation 
of  certain  public  interests.  Thus  centrally  set  as  an  agency 
of  progress,  the  business  administrator,  taken  at  his  best,  may 
be  confidently  recognized  as  the  representative  man  of  action 
of  the  age.  As  such,  he  is  the  spiritual  descendant  of  a  long  fine 
of  administrators  of  former  ages,  —  the  tribal  leaders,  spiritual 
princes,  and  knight s-at-arms  of  past  time.  A  new  profession, 
and  something  more  than  a  new  profession,  is  in  our  time  being 


ADMINISTRATION  131 

produced.  As  it  emerges  there  comes  forth  from  sifted  and 
classified  experience  the  first  principles  of  a  new  science  of 
administration,  in  the  light  of  which  the  administrator  begins 
to  understand  the  possibilities  of  his  position.  These  new 
principles  are  welcomed  by  those  who  have  imagined  the  ideal 
and  are  eager  to  find  the  means  for  its  realization.  They 
are  welcomed  by  public  opinion,  which  through  multiplied 
interference  with  the  doings  of  the  superman  as  a  mere  money 
maker,  has  testified  to  its  anxiety  for  a  new  day  of  more  liberal 
leadership. 

Scientific  Management 

The  latest  material  contribution  of  a  systematic  character 
to  the  science  of  management  has  come,  as  we  should  naturally 
expect,  as  the  result  of  the  work  of  men  of  scientific  training, 
whose  activities  have  carried  them  into  business. 

Historical.  —  About  the  year  1880,  a  small  group  of  mechan- 
ical engineers,  attached  to  certain  metal-working  estabhsh- 
ments  in  the  eastern  part  of  the  United  States,  began  to  inquire 
seriously  into  the  causes  of  the  inefficiency  of  shop  operations. 
These  investigators  found  that  the  conditions  under  which 
work  was  done  had  never  been  brought  under  sufiiciently 
accurate  control  to  determine  whether  failure  to  perform  a 
given  task  was  due  to  the  workman,  or  to  some  one  of  the 
conditions  over  which  he  had  no  authority.  Thej^  began  a 
series  of  experiments  looking  toward  better  methods  of  handling 
labor;  and  carried  these  experiments  through  persistently  for 
many  years,  although  hampered  at  times  from  lack  of  funds, 
suspicion  of  motives,  and  the  complexities  of  the  subject  itself. 
From  the  first  these  studies  spread  out  over  a  variety  of  subjects, 
including  the  mechanics  of  the  machining  of  metals,  the  laws  of 
fatigue  of  human  motions,  and  the  equities  of  the  wage  system. 

Conditions  found.  —  Through  these  studies  it  was  found  — 

1.  That  the  conditions  involved  in  determining  the  efficiency 
of  even  the  so-called  simple  forms  of  work  are  complex,  httle 


132      ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

understood,  and  beyond  the  power  of  operatives  without  scien- 
tific education  to  analyze. 

2.  That  current  performance  and  the  method  prescribed  b}' 
craft  traditions  is  crude  and  wasteful,  judged  in  comparison 
with  what  is  possible  by  scientific  control. 

3.  That  much  of  the  tools  and  apparatus  used  i5  but  indif- 
ferently fitted  for  its  purpose. 

4.  That  httle  is  known  and  less  practised  with  reference  to 
the  laws  of  fatigue,  so  that  the  tempo  of  work,  and  the  sequence 
and  diuation  of  work  and  rest  periods,  is  set  by  guess. 

5.  That  workmen  are  ever^-^^here  performing  tasks  for  which 
they  are  not  fitted  and,  for  the  most  part,  without  knowing  it, 
or  knowing  for  what  they  are  fitted. 

6.  That  no  one.  whether  workman  or  manager,  knows  the 
time  which  the  performance  of  a  given  piece  of  work  shotild 
take,  or  how  much  a  first-class  man  should  do  in  a  day. 

For  a  period  of  twenty  years  this  group  of  men.  most  of  whom 
were  leaders  in  their  profession,  worked  at  available  times 
upon  these  problems.  Theu  general  conclusions  were  that,  in 
comparison  with  what  is  possible  with  scientific  control,  the 
industries  of  the  coimtr^'  are  working  at  about  fifty  per  cent 
efficiency.-  In  ^-iew  of  the  seh-satisfaction  which  at  the  time 
of  the  pubhcation  of  these  reports  marked  most  pubhc  utter- 
ances concerning  American  industrial  achievements,  the  inde- 
pendence of  this  conclusion  is  striking.  It  is  interesting  to 
obser^'e  that  these  conclusions  growing  out  of  the  stud\'  of  shop 
processes  were  confimied  within  a  short  time  by  independent 
investigations  into  the  national  methods  of  handling  natural 
resoiuces.  by  stucUes  of  the  waste  of  mercantile  distribution, 
by  the  reports  of  engineers  concerning  railroad  operations,  and 
bj'  the  conclusions  of  psychologists  as  to  the  low  plane  of 
eflSiciency  upon  which  most  men  are  contented  to  five. 

^  See.  Hearings  Before  the  Sp.  Com.  of  the  H.  of  R.  on  The  I'aylor 
and  Other  Systems  of  Shop  Management.  III.  pp.  13S9  and  1734.  See 
also.  Iron  Age.  Jan.  9,  1913,  for  results  at  the  Watertown  Arsenal. 


ADMINISTRATION  133 

The  new  program.  —  It  will  be  readily  understood  that  if 
a  workman  is  given  a  task  to  perform  in  a  given  time,  let  us 
say,  on  a  machine,  but  if  the  machine  is  out  of  repair,  or  the 
belts  do  not  convey  the  necessary  power  to  attain  the  pre- 
scribed machine  speeds,  or  the  tools  are  dull  or  lost,  or  the 
materials  are  defective,  or  no  foreman  is  at  hand  to  give  neces- 
sary instructions,  such  a  workman  cannot  be  held  responsible 
for  the  failure.  The  failure  is  not  his;  it  is  a  failure  of  man- 
agement. To  bring  under  control  all  these  factors,  and  many 
others,  and  isolate  the  variables  representing  the  workman,  the 
pioneers  of  scientific  management  set  themselves  to  organize 
some  new  agencies.  They  recognized  that  the  management 
was  responsible  for  a  wide  range  of  duties  which  had  not  been 
performed ;  responsible  for  discovering  and  prescribing  the  best 
method,  and  for  standardizing  all  conditions. 

These  many  new  duties  cannot  be  performed  by  the  cus- 
tomary staff  of  executives.  It  is  necessary  to  add  new  fore- 
men, some  of  whom  will  be  engaged  chiefly  in  planning  how 
things  should  be  done,  while  others  will  be  instructors  of  the 
operatives.  The  planning  foremen  may  be  grouped  in  a  plan- 
ning department,  or  sort  of  enlarged  foreman's  office.  This 
office  aims  to  do  for  shop  processes  what  the  drafting  room 
does  for  matters  of  design.  Some  one  has  said,  "The  drafting 
department  is  the  planning  room  of  design;  the  planning 
room  is  the  drafting  department  of  production."  In  such  a 
department  the  more  elaborate  studies  can  be  made,  and 
records  of  performance  can  be  compiled.  Good  records  wiU 
"nail  down"  every  advance,  so  that  the  improvement  of 
method  will  not  slip  away  and  get  lost,  and  require  to  be 
discovered  over  again,  but  will  serve  as  a  firm  basis  for  the 
next  forward  step. 

The  leaders  of  scientific  management  next  turned  their  atten- 
tion to  the  carrying  out  of  the  orders  of  the  planning  room, 
in  the  shop.  They  found  as  the  sole  administrative  agency  of 
the  shop  a  foreman.     This  person  was  heavily  overloaded  with 


134     ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

duties,  and  consequently  left  most  matters  to  be  settled  by 
custom  and  the  inclination  of  the  men.  It  was  necessary  to 
materially  strengthen  tliis  lowest  rank  in  the  administrative 
staff.  The  new  plan  is  to  add  enough  new  foremen  so  that 
each  man  may  be  put  in  charge  of  one  phase  or  aspect  of  the 
work.  In  this  way  a  system  called  functional  foremanizing  — 
a  foreman  for  each  distinct  gi'oup  of  functions  —  grew  up.  A 
scale  of  operations  sometimes  recommended  is  to  appoint  four 
functional  foremen,  called  clerks,  to  serve  as  assistant  superin- 
tendents in  the  planning  room,  and  four  other  functional  fore- 
men, called  bosses,  to  look  after  the  execution  of  work  in  the 
shops. 

The  experience  accumulated  by  the  executive  branch  under 
scientific  management  is  to  be  communicated  to  the  men  by 
the  functional  foremen  by  personal  explanations  and  demon- 
strations; but  there  are  also  pro\'ided  exphcit  written  instruc- 
tions for  each  job,  to  serve  the  workmen  as  reference  records 
and  a  protection  from  undeserved  censure. 

In  putting  these  ideas  into  practice,  it  was  found  necessary 
to  take  steps  to  ensure  the  hearty  cooperation  of  the  w^orkmen. 
The  most  important  agency  in  this  is  a  system  of  wage  pay- 
ments which  are  just  in  amount,  and  which  vary  in  accordance 
with  individual  performance.  The  promoters  of  scientific 
management  found  in  use  various  methods  of  remuneration, 
such  as  the  day-wage  system,  cooperation,  profit-sharing,  the 
sliding  scale,  and  the  piece-rate  sj^stem.  Among  these  plans 
that  which  pays  most  nearly  according  to  individual  perform- 
ance is  the  piece  rate.  This  plan  was  examined  and  found  to 
be  generaUj'  disliked  by  workmen  and  opposed  by  trades  unions. 
The  defect  of  it  w^as  found  to  he  in  the  fact  that  rates  were 
set  by  guess,  so  that  when  the  workmen  were  able,  by  chance,  to 
increase  production  to  an  unexpected  degree,  or  when  unprove- 
ments  were  introduced  by  the  management  and  had  a  like  result, 
the  rates  were  cut,  with  the  result  that  the  workmen  became 
convinced  that  the  whole  scheme  was  a  trap,  intended  to  reveal 


ADM  INI  ST  RA  TION  135 

their  maximum  productive  capacity,  and  then  exact  the  maxi- 
mum task  for  ordinary  day  wages.  To  remedy  these  evils, 
the  leaders  of  scientific  management  planned  a  new  form  of 
piece  rate  based  upon  (a) ,  accurate  measurement  of  the  amount 
of  work  proper  to  do  in  a  day;  {h),  the  guarantee  that  no  rate 
should  be  cut  or  time  changed,  except  as  conditions  of  produc- 
tion changed  so  that  the  task  became  in  reahty  a  new  one,  and 
(c),  the  full  recognition  of  the  fact  that  an  extraordinary  day's 
work  required  an  extraordinary  day's  pay.  The  aim,  in  brief, 
is  to  apply  science  as  far  as  possible  in  measuring  the  factors 
involved  in  establishing  the  balance  between  performance  and 
reward,  and  to  deal  squarely,  generously,  and  openly  with  the 
laborer,  so  as  to  expect  and  deserve  intimate  cooperation  and 
the  entire  banishment  of  discord. 

The  creed.  —  The  central  ideas  of  this  movement  can  be 
summarized  in  a  list  of  points  somewhat  as  follows: 

1.  The  management  must  be  responsible  for  all  managerial 
functions. 

2.  An  increased  administrative  staff  must  be  provided,  to 
perform  the  wide  range  of  functions  connected  with  planning 
and  the  supervision  of  performance. 

3.  Planning  should  be  carried  on  in  advance  of,  and  dis- 
tinct from,  performance. 

4.  A  new  group  of  standards  should  be  formulated  for  the 
control  of  the  condition  of  equipment,  and  the  regulation  of 
the  time,  place,  and  manner  of  performance.  Standard  times 
involve  a  schedule  of  events.  A  schedule  necessitates  system- 
atic routing,  so  that  the  whereabouts  of  work  may  be  known 
at  all  times.  These  standards  should  result,  finally,  in  the 
assignment  to  each  person  dail}"  of  a  definite  and  clearly  circum- 
scribed task. 

5.  Select  persons  who  possess  special  aptitude  for  the  task 
assigned  to  them. 

6.  Individualize  records  of  performance,  and  furnish  prompt 
information  as  to  results. 


136      ADMINISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

7.  Remuneration  should  be  in  accordance  with  individual 
performance.^ 

Secretary  W.  C.  Redfield  has  thus  summarized  the  points 
of  the  present  movement:  ''Disclaiming  attachment  to  any 
particular  sj^stem  or  exponent  of  efficiency,  the  following  ele- 
ments may  be  said  to  be  clear  in  all  that  is  proposed  in  behalf 
of  the  alleged  new  industrial  gospel: 

''  Close  cooperation  and  s>Tnpathy  between  the  management 
and  the  workmen.  This  is  foremost  and  basic.  If  it  is  not 
reahzed  that  this  is  foremost  and  basic,  the  subject  is  completely 
misapprehended. 

''The  standardization  of  equipment  and  accessories  through- 
out the  shoi3. 

"The  S3^stematizing  of  work  in  operation,  of  the  care,  main- 
tenance and  issue  of  materials  and  tools,  and  the  careful  routing 
of  all  orders  wliile  passing  through  the  works. 

''The  planning  in  advance  of  the  work  for  each  machine, 
and  furnishing  tools,  fixtiues,  and  materials  ready  to  the  hand 
of  the  workman  before  needed,  so  that  delay's  between  opera- 
tions are  cut  out. 

"The  study  of  the  actual  time  occupied  by  each  element 
or  movement  of  ever}-  operation,  in  order  to  determine  the 
correct  time  required  for  it,  and  to  save  waste  energy. 

"The  determination  in  time  stiKh^  of  the  proper  allowance 
for  rest,  necessary  delays,  or  interruptions  of  work. 

"The  fixing  of  standard  time  for  doing  work,  based  tipon 
the  aforesaid  studies,  and  the  careful  personal  instruction  of 
workmen  in  the  best  and  easiest  methods  of  working. 

''The  payment  usually  to  the  worlanan  of  a  bonus  or  pre- 

^  Mr.  Harrington  Emerson  has  stated  the  principles  of  efficiency  in 
twelve  points.  1,  Definite  plans  and  ideals.  2,  Supernal  common  sense. 
3,  Competent  guidance.  4,  Discipline.  5,  The  fair  deal.  6,  Despatch- 
ing. 7,  Reliable,  immediate,  and  adequate  records.  8,  Determination  of 
standards.  9,  Standard  practice  instructions.  10,  Standardized  condi- 
tions.    11,  Standardized  operations.     12,  Efficiency  reward. 


ADMINISTRATION  137 

mium,  based  upon  his  doing  the  work  in  a  certain  relation  to 
the  standard  time."  ^ 

Influence  exerted.  —  The  investigations  which  we  have  here 
briefly  considered  were  carried  on  quietly,  with  no  further 
pubhcity  than  occasional  papers  read  before  professional  soci- 
eties, until  the  railroad  rate  hearings  in  Washington  in  1910 
brought  the  system  prominently  before  the  pubhc.  In  those 
hearings  Mr.  Louis  D.  Brandeis,  representmg  eastern  shippers, 
presented  the  argument  that  American  railways  would  not 
need  rate  increases  if  they  adopted  the  methods  of  scientific 
management.  In  particular,  at  this  time,  an  estimate  made 
by  ]Mr.  Harrington  Emerson  that  the  raikoads  might  save 
$1,000,000  per  day  in  operating  expenses,  attracted  general 
attention  and  aroused  Hvely  debate.  Since  that  time  many 
books  have  been  pubhshed  on  the  subject  of  scientific  man- 
agement, numerous  conferences  have  been  held,  and  several 
national  societies  have  been  organized  for  the  study  of  efficient 
business  methods. 

The  full  program  of  scientific  management,  complete  in  every 
particular,  is  nowhere  in  operation.  A  moderate  number  of 
establishm^ents  employ  the  greater  part  of  the  plan.  Countless 
businesses  have  been  aroused  by  the  story  of  the  original  experi- 
ments, and  have  felt  the  influence  of  certain  ideas  which  form 
a  part  of  the  doctrine.  The  various  essential  points  of  scien- 
tific management  are  by  no  means  all  new;  some  of  them  are 
now  enjoying  a  new  vitality  and  definition  as  the  result  of  new 
experiments,  others  are  incorporated  without  change  from 
accounting  practice  or  from  the  system  movement  or  from 
non-economic  experience. 

The  advantage  of  bringing  the  various  elements  together  in 
a  creed  or  code  is  that  a  logical  system  is  thereby  created  which 
has  more  significance  and  carrying  power  than  the  various 
points   would   possess   if   advanced   disconnectedly.     With    a 

1  The  New  Industrial  Day:  A  Book  for  IMen  who  Employ  Men,  N.  Y., 
1912,  pp.  176-177. 


138      ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

complete  program  before  him,  an  administrator  can  select 
such  matters  for  application  as  his  conditions  or  his  state  of 
mind  will  permit.  It  is  altogether  probable  that  the  chief 
service  which  this  movement  wiU  perform  will  be  through  a 
general  process  of  permeation,  by  which  ideas  will  pass  infor- 
mally from  establishment  to  estabhshment;  a  certain  improve- 
ment being  adopted  in  one  place,  a  different  feature  introduced 
in  another  place,  a  new  attitude  of  mind  coming  to  animate  a 
man  here  and  there.  If  the  movement  starts  anything  hke  a 
general  process  of  self-examination  among  manufacturing  con- 
cerns and  other  businesses  of  similar  managerial  conditions, 
its  leaders  may  w^eU  feel  content  with  their  contribution  to 
progress.  Scientific  management  has  come  into  existence  at 
a  logical  time.  It  has  come,  as  Mr.  Charles  B.  Going  has  said, 
in  company  with  engineering,  conservation,  fire  prevention,  fac- 
tory hygiene,  welfare  work,  cost  accounting,  and  government 
efficiency. 

Objections.  —  It  is  natural  and  proper  that  objections  should 
be  urged  against  scientific  management.  Among  those  which 
have  been  oft^ered  let  us  consider  a  few,  aiming  in  the  discussion, 
chiefly,  to  further  elucidate  the  system. 

1.  Mental  stagnation:  It  has  been  urged  that  since  scientific 
management  determines  so  many  matters  for  the  operative, 
and  instructs  him  so  much  in  detail,  it  will  reduce  him  to  an 
automaton,  and  destroy  his  power  to  think.  In  the  average 
shop  the  method  is  ordinary:  under  scientific  management  it 
is  the  best  attainable.  Is  it  the  superior  method  which  is 
hostile  to  thinking?  In  the  ordinary  shop  men  are  for  the 
greater  part  of  their  time  employed  on  tasks  beneath  them  in 
quality,  while  the  thought  rambles  in  unproductive  wool- 
gathering; in  an  efl&ciency  shop  the  aim  is  to  keep  men  upon 
the  highest  kind  of  work  of  which  they  are  capable.  Is  this 
concentration  of  faculties  the  road  to  intellectual  stagnation? 
In  the  average  shop  there  is  httle  instruction  from  persons  of 
superior  knowledge,  and  the  processes  drift  along  at  the  com- 


ADMINISTRATION  139 

fortable  level  of  the  average  mind:  under  scientific  manage- 
ment the  operatives  are  intimately  associated  with  a  group  of 
instructors  who  explain  and  demonstrate  the  best  methods,  as 
in  a  training  school;  and  they  are  furnished  with  carefully  pre- 
pared instruction  sheets  which  are  virtually  the  pages  of  a 
text-book  upon  the  art  in  which  they  are  engaged.  Surely 
such  a  contact  between  higher  and  lower  is  not  deadening. 
Drudgery  is  work  done  in  darkness  of  spirit.  The  remedy  for 
it  is  to  let  the  light  of  intelligence  shine  upon  it,  by  multiplying 
the  means  of  communication  between  the  world  of  thought 
and  the  world  of  work.  The  intelligent  man  finds  a  means  of 
robbing  even  the  crudest  work  of  drudgery,  for  his  inner 
resources  enable  him  to  make  out  of  the  work  a  problem  of 
method.  For  the  man  who  cannot  thus  save  himself  there  is 
but  one  salvation :  to  bring  him  and  his  task  into  contact  with 
a  superior  mind,  so  that  his  blindness  with  reference  to  the 
possibilities  of  his  task  may  be  cured.  In  answer  to  Mr. 
Mitchell's  flourish  that,  ''The  worker  should  not  be  deprived 
of  his  right  to  think,"  ^  it  can  safely  be  said  that  more  thinking 
is  done  in  connection  with  scientific  management  than  any 
other  system  of  production  ever  devised,  and  that  a  higher 
ratio  of  thinkers  to  mere  ''hands"  is  required  to  operate  it 
than  any  other.  Under  scientific  management  the  attention  of 
the  workman  is  sharply  drawn  to  his  task.  He  entertains  a 
new  respect  for  it,  by  learning  that  it  is  a  worthy  object  of 
study,  and  that  it  is  possible  to  bring  out  of  it  an  unsuspected 
fine  art.  Fine  methods  act  as  a  mental  tonic.  The  tone  of 
shops  converted  to  efficiency  methods  is  raised  at  once,  and  the 
men  gain  in  self-respect. 

As  to  the  liberty  which  the  workman  enjoys  of  suggesting 
better  methods,  a  scientifically  managed  establishment  offers 
the  greatest  possible  opportunities,  for  it  can  most  quickly 
test  and  reject  inferior  variants,  and  most  fully  reward  those 
who  discover  superior  methods,  because  its  control  of  opera- 
^  Greater  Efficiency,  Apr.  1914,  p.  30. 


140      ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

tions  permits  it  to  make  the  new  method  standard  and  so  fully 
exploit  its  advantages.  When  it  comes  to  the  recognition  of 
the  exceptional  talent  which  appears  among  workmen  by  giving 
promotion,  no  estabhshments  are  so  favorably  organized  as 
those  with  fmictional  foremanship,  for  none  have  such  a  large 
corps  of  subordinate  ofl&cers  and  special  foremen  to  be  recruited 
from  the  ranks.  As  is  well  known,  the  chief  administrative  bar, 
in  ordinary  establishments,  to  the  making  of  suggestions  by 
operatives  is  the  general  foreman,  who  is  too  busy  to  welcome 
criticisms  from  the  force,  who  quicklj^  gains  the  idea  that  a 
thinking  workman  is  tr3'LQg  to  make  a  showing  to  get  his  job, 
and  whose  uncurbed  power  over  hhing  and  discharge  makes 
his  enmity  fatal  to  an  employee.  The  plan  of  functional 
foremanship,  by  destroying  autocratic  power,  faciUtates  the 
upward  as  well  as  the  downward  passage  of  information.  Mr. 
Lero}^  Tabor,  President  of  the  Tabor  ^Manufacturing  Company 
of  Philadelphia  has  said,  ''In  order  to  make  a  man  feel  that  he 
is  perfectly  free  to  make  any  criticism  along  sluj  and  all  hnes  it 
is  necessar}'  to  so  arrange  it  that  no  foreman  can  directl}^ 
discharge  him." 

Scientific  management  imposes  onl}-  one  bar  to  suggestion, 
and  that  is  the  ancient  rule  recognized  in  eveiy  fine  art  and 
apphed  in  every  scientifically  controlled  profession,  namely, 
that  no  one  shall  presume  to  revolutionize  methods  who  has 
not  demonstrated  his  mastery  of  the  method  akeady  in  use. 
The  purpose  of  the  rule  is  to  defend  the  precious  body  of 
accepted  knowledge  from  violent  hands;  and  avoid  the  per- 
petual uproar  as  to  methods  which  would  ensue  if  attention 
were  given  to  every  one  who  pretended  to  a  grasp  of  funda- 
mental principles. 

2.  Oppression:  It  has  been  asserted  by  a  representative 
of  organized  labor  that,  ''Bj^  scientific  management,  the  em- 
ployers are  trying  to  squeeze  the  last  drop  of  blood  out  of  the 
bodies  of  the  workers."  ^  This  is  simply  a  question  of  fact. 
1  Mr.  Duffy  in  Greater  Efficiency,  Apr.  1914,  p.  35. 


ADMINISTRATION  141 

The  three  volumes  of  Congressional  investigation  of  the  Taylor 
and  other  systems  of  shop  management  ^  are  a  standing  proof 
that  the  combined  efforts  of  disaffected  individuals  and  hostile 
unions  failed  to  prove  any  such  thing  as  this  in  the  case  of  any 
estabhshment  operated  according  to  the  principles  of  scientific 
management.  The  distinction  between  scientific  management, 
and  a  drive  management,  which  may  by  chance  use  some 
scientific  agencies,  is  that  drive  management  secures  results  by 
driving  operatives  to  work  harder,  and  does  so  without  proper 
safeguards  against  excessive  pace;  while  scientific  management 
secures  its  results  chiefl}''  by  extending  and  energizing  the 
managerial  staff,  and  through  it  discovering  a  better  way  of 
doing  things.  The  new  duties  of  administration  have  been 
classified  by  Mr.  F.  W.  Taylor  as  follows:  "1,  Gathering  all  the 
great  mass  of  traditional  knowledge  and  reducing  it  to  laws. 
2,  Scientific  selection  and  progressive  development  of  the  work- 
man. 3,  Bringing  the  science  and  the  scientifically  selected 
and  trained  workman  together.  4,  Almost  equal  division  of 
the  actual  work  of  an  estabhshment  between  the  workmen 
and  the  management."  ^ 

Where  increased  exertion  is  called  for  from  the  operative, 
scientific  management  safeguards  him  by  numerous  and  rather 
elaborate  precautions.  There  is,  indeed,  much  still  to  be  done  by 
business  administrators  in  protecting  worlaiien  from  over-strain. 
This  problem  will  be  considered  more  at  length  in  a  later  chapter. 

3.  Misuse  of  scientific  agencies:  It  has  been  urged  that,  by 
discovering  new  tests  of  the  worker's  capacity  and  new  agencies 
for  his  control,  scientific  management  is  forging  weapons  which 
may  fall  into  the  possession  of  harsh  and  selfish  managements, 

1  Hearings  before  the  Special  Committee  of  the  House  of  Representa- 
tives on  The  Taylor  and  Other  Systems  of  Shop  Management,  Washington, 
D.  C,  3  Vols.,  1912. 

2  Hearings  before  the  Sp.  Com.  of  the  H.  of  R.  on  The  Taylor  and 
Other  Systems  of  Shop  Management,  Washington,  1912.  Vol.  Ill,  pp. 
1393-1395. 


142      ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

and  be  used  for  the  oppression  of  operatives.  This  is  not  an 
argument  against  scientific  management  but  against  the  dis- 
covery of  any  scientific  instrumentality  whatsoever.  Effective 
agencies  are,  of  course,  effective  in  misuse,  as  in  use.  The 
danger  of  misuse  does  exist;  it  exists  here  as  it  does  at  everj^  step 
in  progress  which  endows  the  human  hand  and  the  human 
brain  with  agencies  of  increased  potenc3^  The  first  answer 
is  that  the  more  refined  and  scientific  the  nature  of  an  agency 
the  more  its  use  will  be  confined  to  men  of  education,  whose 
minds  are  normal  and  orderty,  who  have  learned  to  enforce 
disciphne  upon  their  own  passions,  and  who  aspire  to  broad- 
minded  and  just  ideals.  A  second  answer  is  that  experience 
shows  that,  in  the  appUcation  of  an}'  new  agency,  good  uses 
vastly  predominate  over  bad  ones.  If  we  beheve  that  the 
majority  of  people  are  fair-minded,  as  those  labor  leaders  who 
speak  so  much  of  industrial  democracy  certainly  must  do,  we 
need  have  no  fear  of  general  results.  A  third  answer  is  that 
any  sj^stem  which  laj^s  special  emphasis  upon  investigation 
and  scientific  agencies  of  accumulating  knowledge  is  sure, 
sooner  or  later,  to  accumulate  records  which  will  reveal  the  true 
significance  of  every  health-destro^^ing  condition  and  every 
pohcy  wliich  breeds  the  sense  of  injustice.  It  ma}^  at  the  start 
be  crude,  but  it  is  bound  to  improve.  ''Let  the  fight  shine," 
said  Erasmus,  ''and  the  darkness  will  disappear  of  itself."  A 
fourth  answer  has  to  do  with  the  choice  of  methods  of  influenc- 
ing industrial  evolution.  The  technical  progress  of  the  world's 
industry'  has  now  attained  such  momentum  that  it  is  not  hkely 
that  any  special  economic  interest  can  retard  it  materially. 
With  each  increase  in  the  command  which  society  possesses  over 
the  agencies  of  living  there  is  a  need  of  further  enhghtenment 
as  to  the  worthy  objects  of  fife.  What  a  world  which  is  rapidly 
growing  rich  most  needs  is  not  those  persons  who  rail  against 
progress  but  those  persons  who  can  vividh"  picture  the  attrac- 
tions of  the  ideals  which  the  technical  advance  has  at  last 
converted  into  possibilities. 


ADMINISTRATION  143 

What  shall  be  the  next  step  in  the  application  of  science  to 
management?  —  Now  that  the  nature  of  the  contribution  which 
scientific  management  has  to  offer  is  reasonably  well  defined, 
we  may  look  beyond  it  and  ask  what  more  the  application  of 
science  to  management  will  involve.  When  the  achievements 
of  the  period  of  the  inventors  and  engineers  are  considered  in 
comparison  with  the  problems  of  general  administration  upon 
which  interest  now  centers,  scientific  management  appears  in 
the  Hght  of  a  transitional  aid  or  bridge  connecting  the  day 
which  was  absorbed  in  material  agencies  of  production  with 
the  present,  which  is  concerned  with  human  relationships. 
Most  of  the  pioneers  of  scientific  management  are  men  of 
engineering  training.  Beginning  with  circumscribed  technical 
problems  of  shop  operation,  they  followed  the  lead  of  their 
studies  up  into  the  higher  world  of  general  administration. 
They  have  by  no  means  constructed  a  complete  science  of 
administration.  They  have,  however,  contributed  some  valu- 
able materials  to  it. 

Administrative  Principles 

In  order  to  present  somewhat  more  fully  the  problem  of  the 
general  administrator  than  was  possible  in  connection  with  the 
discussion  of  scientific  management,  let  us  add  to  the  principles 
there  enumerated  some  others  which  bear  upon  the  adjustment 
of  the  human  factors. 

1.  The  measurement  of  authority:  Clearly  defined  relations 
of  authority  and  responsibility  should  be  established,  definitely 
assigning  every  function,  placing  no  one  in  subordination  to 
two  others  in  the  same  responsibility,  and  avoiding  undue 
concentration  of  authority  or  duty  at  any  point. 

2.  Division  of  functions:  The  principle  of  division  of  labor 
applies  as  much  to  administration  as  to  execution.  In  subordi- 
nate administrative  positions  the  grouping  of  functions  will 
aim  chiefly  at  bringing  together  work  of  the  same  nature.  In 
the  middle  ranks  it  will  aim  at  including  in  groups  the  functions 


U-i      ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

for  which  an  administrative  subdivision,  such  as  a  bureau  or  a 
department,  should  be  responsible.  In  the  highest  positions 
the  chief  aim  will  be  to  utilize  completely  the  talents  of  a  gifted 
person. 

3.  Choice  of  persons:  The  underMngrule  is  that  talents  and 
functions  should  be  in  harmony.  But  since  it  is  miportant  to 
make  the  initial  positions  in  any  business  as  far  as  possible  those 
positions  which  are  at  the  bottom  of  the  various  hues  of  pro- 
motion, and  since  the  higher  ranks  can  onh^  be  kept  full  through 
the  fitness  of  those  who  are  below  for  advancement,  it  is  impor- 
tant that  candidates  should  possess  talents  not  unmediately 
utilizable,  but  which  give  the  promise  of  growth.  The  lower  a 
position  is  in  the  scale  of  advancement,  the  more  essential  is 
all-round  talent  in  the  candidate,  so  that  future  promotion  can 
take  any  one  of  a  variety  of  dhections,  according  to  the  neces- 
sity arising  from  the  balancing  of  the  force.  The  higher  a 
position  is,  the  more  will  specific  training  and  special  talent 
decide  the  choice. 

4.  Coordination:  Each  agency  in  an  organization,  whether 
that  agency  be  a  gang  in  a  shop,  or  a  corps  in  an  office,  or  a 
stand  of  machines  adapted  to  a  process,  should  be  brought 
to  such  a  degi'ee  of  productive  power  as  to  be  able  to  perform 
as  much  of  its  Idnd  of  work  as  the  functioning  of  the  other 
agencies  will  render  necessary.^  The  test  of  perfect  coordina- 
tion is  equivalent  marginal  utihty.  The  last  doses  of  labor 
force,  executive  attention  or  invested  capital  applied  to  the 
various  functions  of  an  enterprise  should  bring  in  substantially 
equivalent  profitable  returns. 

5.  Cooperation:  The  power  of  an  organization  is  the  result 
of  its  constructive  and  aggressive  forces  minus  its  resisting 
forces.  When  the  administrator  feels  himself  to  be  the  sole 
driving  agency,  and  finds  liunseK  chiefly  engaged  in  arousing 
those  who  are  apathetic  and  coercing  those  who  are  antag- 

1  For  mention  of  this  principle,  and  an  illustrative  diagram  see  Ch.  IV, 
Layout  of  a  ^Manufacturing  Establishment,  pp.  61-62. 


ADMIN  ISTRA  TION  145 

onistic,  there  is  something  vitally  wrong  with  the  plan.  An 
administration  should  find  itself  mainly  engaged  in  directing 
the  energies  which  create  themselves  naturally  in  all  parts  of 
the  business,  and  in  finding  the  proper  outlet  for  the  eager  up- 
ward striving  of  the  ranks  below.  An  administrator  should 
not  be  chiefly  a  whipper-in  but  a  guide;  not  a  detective  but 
a  creator  of  opportunity. 

6.  The  system  of  orders:  Affairs  are  easiest  controlled  in 
their  origins.  The  power  of  initiative  belongs  to  the  adminis- 
tration. All  performance  of  a  non-administrative  character 
should  be  in  response  to  orders  only.  The  order,  which  is 
primarily  a  communication  of  necessary  authority,  should, 
under  the  complex  conditions  of  modern  industry,  be  elaborated 
to  include  all  necessary  instructions  as  to  materials,  tools, 
processes,  sequences,  and  standard  times. 

7.  The  system  of  reports:  An  order  communicates  authority 
from  a  higher  to  a  lower.  A  report  discharges  the  responsi- 
bility of  a  lower  to  a  higher.  Just  as  an  order  should  com- 
municate all  information  necessary  for  execution,  so  a  report 
should  communicate  all  information  essential  for  administra- 
tion. The  functions  of  an  organization  should  be  so  planned 
that  the  major  part  of  the  information  necessary  for  the 
executives  will  come  into  their  hands  automatically,  through 
the  normal  functioning  of  the  business,  and  not  as  a  result  of 
their  personal  efforts  in  collecting  it. 

8.  Information:  There  are  three  tides  of  information  which 
should  flow  swift  and  straight  and  full  within  an  organization. 
The  first  of  these,  mentioned  in  point  6,  is  the  communication 
of  authority  and  information  downward.  The  order  should 
carry  this,  but  it  should  do  more.  It  should  aim  to  reveal  to 
the  mind  of  the  operative  whatever  of  elegance  of  means  or 
refinement  of  art  is  known  in  connection  with  his  task,  so  that 
something  of  intellectual  significance  shall  rise  out  of  the  work 
to  arouse  his  interest,  and  give  him  ground  for  self-respect  in 
his  accomplishment. 


146      ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

The  second  stream  of  information,  mentioned  in  point  7, 
flows  in  the  reverse  direction  from  operative  to  executive, 
gi\'ing  account  of  the  authority  used.  A  perfunctory-  report 
should  be  a  small  part  of  the  inpoiu-ing  of  information  upon 
the  executive  from  all  directions.  There  is  bound  to  be  a  large 
volume  of  valuable  ideas  springing  from  the  experience  of  those 
in  the  ranks,  provided  men  are  encouraged  to  think  as  they 
work.  It  is  the  fimction  of  a  suggestion  system  to  gather  such 
ideas  by  a  plan  which  avoids  the  opposition  of  the  foremen  or 
fundamentally  changes  that  attitude,  which  pro^-ides  a  compe- 
tent board  to  examine  suggestions,  and  which  rewards  those 
who  contribute  both  adequately  and  in  a  way  to  stimulate 
emulation. 

The  thii'd  movement  of  information  is  again  from  adminis- 
trator to  operative  and  has  for  its  aim  to  inform  the  operative 
of  his  indi^^.dual  record,  of  the  record  of  his  department,  and 
of  the  significance  of  these  records  in  the  achievements  of  the 
business  as  a  whole.  It  is  a  deeply  implanted  instioct  to  desire 
to  know  the  results  of  our  efforts.  A  knowledge  of  results  is 
an  important  part  of  the  reward  of  effort.  How  much  interest 
would  there  be  in  a  football  game  if  at  the  end  of  ever\-  quar- 
ter the  baU  were  kicked  into  another  field,  where  the  play  was 
continued  by  another  team;  and  if  no  one  but  the  athletic 
association  could  calculate  the  score,  and  no  information  as  to 
results  were  given  out  until  the  end  of  the  month?  Associated 
production,  engaged  as  it  often  is  ia  processes  which  bear  but 
remotely  upon  completed  utilities,  expects  men  to  be  interested 
in  directing  their  energies  iato  a  void,  where  they  are  lost  to 
calculation  for  a  week  or  month,  or  perhaps  forever,  except  as 
remote  inferences  can  be  drawn  from  occasional  promotions 
and  discharges. 

^Ir.  W.  H.  MaUock  ^  has  explaiaed  the  work  of  a  leader  to 
consist  in  constructing  out  of  ideas  a  sort  of  go-cart  for  wheehng 
along  weaker  iQtellects  more  rapidly  than  they  could  go  with 
1  Aristocracy  and  Evolution,  X.  Y.,  1901,  p.  137. 


ADMINISTRA  TION  147 

their  own  powers  of  locomotion.  Adequate  information  sets 
up  a  court  of  reason,  banishing  the  reign  of  "Do  this  be- 
cause I  say  so,"  and  substituting  a  government  based  upon 
permanently  estabHshed,  public,  and  impersonal  rules  of  action. 

9.  Promotion:  Ambitious  men  aim  to  perform  their  tasks 
in  such  an  excellent  manner  as  to  attract  attention,  and  indicate 
their  fitness  for  promotion.  Wages  do  not  balance  the  account 
for  such  services:  a  part  of  the  expected  reward  is  advance- 
ment. If  an  administration  introduces  men  from  the  outside 
into  the  higher  positions,  it  gives  notice  to  its  emploj^ees  that 
promotions  need  not  be  expected,  so  that  only  so  much  service 
is  looked  for  from  them  as  will  exactly  counterbalance  the  cur- 
rent wage.  But  if  a  business  makes  a  point  of  advancing  its 
own  men,  the  whole  force  becomes  occupied  in  making  records; 
and  even  the  loss  from  the  death  or  resignation  of  valuable 
men  is  partly  offset  by  the  stimulus  which  runs  down  the 
promotion  lines.  Promotions  are  facilitated  by  forming  posi- 
tions into  a  ladder  or  series  of  steps,  in  which  the  work  of  each 
place  is  a  preparation  for  the  next  higher  place. 

10.  The  normal  incentive:  When  men  work  for  themselves 
they  are  energized  by  three  types  of  incentives:  first,  the 
pleasure  they  derive  directly  from  the  work  itself  as  an  outlet 
of  energy  and  a  demonstration  of  mastery;  second,  the  con- 
sciousness of  service,  or  the  realization  that  the  work  satisfies 
the  want  of  others;  third,  the  personal  profit  arising  from  the 
remuneration  received.  It  is  a  shame  for  an  administration 
to  cut  off  its  employees  from  two  of  these  incentives,  and  leave 
to  them  only  pay  as  the  energizer. 

11.  Administration  and  human  nature:  Administration  is 
chiefly  a  task  of  handling  men.  Its  methods  must  conform 
to  human  nature.  It  should  educate  and  interest  men,  and 
so  conserve  the  deHcate  tissues  of  mind  and  body  from  which 
all  human  energy  proceeds,  that  disease,  premature  invalidism, 
apathy,  antagonism,  and  all  other  negative  and  destructive 
factors  shall  be  reduced  to  the  lowest  possible  sum.     Men 


148      ADMIXISTRATIOX  OF  IXDCSTRIAL  EXTERPRISES 

love  distinctions,  and  social  rewards:  and  delight  in  sharp  group- 
ings which  evoke  the  spirit  of  connnon  cause,  and  emulations 
with  the  game  of  self-testing  strong  in  them.  Their  nature  is 
to  learn  by  ^-ivid  personal  illustrations;  and  to  work  in  spurts 
for  nearby  and  tangible  rewards.  ^Modern  industr\'  is  often 
too  prosaic  and  too  mechanical  to  arouse  men.  There  is  need 
of  more  badges  and  distmctions  and  honorable  mentions,  for 
more  foremanships  and  minor  executive  positions  to  aspire  to, 
and  for  more  special  committees  to  serve  on.  The  new  day  in 
administration  will  see  a  way  found  to  introduce  into  industry 
more  spice  and  romance,  and  more  exercise  for  the  emotional 
nature,  —  more  strategic  play  to  capture  the  interest,  and  more 
fine,  imaginatively  presented  aims  to  awaken  real  devotion. 


BIBLIOGRAPHY 

Scientific  management. 
Taylor.  F.  W.:   The  Principles  of  Scientific  Management,  X.  Y.,  1912. 
Taylor,  F.  W.:   Shop  Management,  X.  Y..  1911,  first  published  in  Trans. 

of  Am.  Soc.  of  Mech.  Eng..  1903,  Vol.  29,  Xo.  1003,  pp.  1337-14S0. 
Emerson,  Harrington:    Efficiency  as  a  Basis  for  Operation  and  Wages, 

3d  Ed.,  X.  Y..  1912. 
Emerson,  Harrington:    The  Twelve  Principles  of  Efficiency,  X'.  Y.,  1912. 
Gantt,  H.  L.:   Work,  Wages,  and  Profits,  X.  Y.,  1910. 
Gantt,  H.  L.:    Principles  of  Industrial  Leadership,   Xew  Haven,   Conn., 

1916. 
Gilbreth,  F.  B.:   Primer  of  Scientific  Management,  X'.  Y.,  1912. 
Thompson,   C.  B.   (Editor):    Scientific  Management,   Cambridge,  Mass., 

1914.     Reprints    of    periodical    articles    on    scientific    management; 

extensive   bibUography. 
Parkhurst,  F.  A.:    Apphed  Methods  of  Scientific  Management,   X'.  Y., 

1912. 
Hearings  before  the  H.  of  R.  Special  Com.  on  The  Taylor  and  Other 

Systems  of  Shop  Management,  Washington,  D.  C,  1912.     3  Vols. 
Dartmouth  College  Conference  on  Scientific  Management,   Dartmouth, 

X.  H.,  1912. 
Drtu^",   Horace  B.:    Scientific   Management:    A  Histor^'  and   Criticism, 

X'.  Y..   1915.     Columbia  L'niv.  Studies  in  History-,  Economics,  and 

PubHc  Law.  Vol.  LXV.  Xo.  2. 


ADMINISTRATION  149 

Hoxie,  Robert  F.:  Scientific  Management  and  Labor,  N.  Y.,  1915.  Based 
on  an  investigation  authorized  by  the  United  States  Com.  on  Indus- 
trial Relations. 

Commons,  John  R. :  Organized  Labor's  Attitude  toward  Industrial  Effi- 
ciency, Bulletin  Am.  Econ.  Asso.  (The  Am.  Econ.  Rev.),  Sept   1911 
pp.  463-472. 

Brandeis,  L.  D.,  Scientific  Management  and  the  Railroads,  N.  Y.,  1911. 

General  Principles  of  Administration. 

Hartness,  James:  The  Human  Factor  in  Works  Management,  N.  Y.,  1912. 

Emerson,  Harrington:  Twelve  Principles  of  Efficiency,  N.  Y.,  1911.' 

Church,  A.  H.:  Science  and  Practice  of  Management,  N.  Y.,  1914. 

Jones,  Edw.  D.:  The  Business  Administrator:  His  Models  in  War,  State- 
craft, and  Science,  N.  Y.,  1914,  especially  Chs.  II  to  IV  inch,  on 
The  Administrator  as  a  General. 

Jones,  Edw.  D.:  Principles  of  Administration,  The  Am.  Econ.  Rev., 
Vol.  V,  No.  I,  Mch.  1915,  Supplement,  Proc.  27th  Annual  Meeting 
of  Am.  Econ.  Asso.,  pp.  209-226,  with  bibhography. 

Hine,  Maj.  Chas.  D.:  Modern  Organization:  An  Exposition  of  the  Unit 
System,  N.  Y.,  1912. 

Ennis,  Wm.  D.:  Works  Management,  N.  Y.,  1911,  pp.  118-125. 

Gillette,  H.  P.,  and  Dana,  R.  T. :  Cost  Keeping  and  Management  Engi- 
neering, N.  Y.,  1909.     Ch.  I,  The  Ten  Laws  of  Management. 

The  Present  State  of  the  Art  of  Industrial  Management.  Report  of 
Comm.  on  Administration  of  Am.  Soc.  of  Mech.  Eng.,  in  Transac- 
tions 1912,  Vol.  34,  No.  1378. 

Machiavelli,  N.:  The  Prince,  Trans,  by  W.  K.  Marriott,  N.  Y.,  1908 
(Everyman's  Library). 

Machiavelli,  N.:  Discourses  on  the  First  Ten  Books  of  Titus  Livius, 
Boston  and  N.  Y.,  1891. 

Clausewitz,  Gen.  Carl  von:  On  War,  Trans,  by  Col.  J.  J.  Graham,  London, 
1908,  3  Vols. 

Vachee,  Col.  Jean  B.,:    Napoleon  at  Work,  Trans,  by  G.  F.  Lees,  Lon- 
don and  N.  Y.,  1914. 
Gracian,   Belthasar:    The   Art   of  Worldly   Wisdom,   Trans,   by  Joseph 

Jacobs,  London,  1913. 
Foster,  John:  On  Decision  of  Character,  N.  Y.:   1875. 


CILIPTER   VIII 
THE   FIIN'CTIONS    OF   THE   WORKS   MA^'AGER 

The  supervision  of  manufacturing  processes,  and  the  control 
of  the  various  ser^-ice  depaitments  whose  activities  are  directed 
specifically  to  furthering  these  processes,  devolves  upon  the 
highest  technical  authority  in  an  organization,  namely,  the 
general  superintendent  or  works  manager.  This  executive  is 
expected  to  keep  the  phv'sical  equipment  and  the  productive 
processes  up  to  standard,  and  to  employ  an  adequate  force 
of  foremen,  laborers,  and  mechanics.  He  controls  operations 
through  a  schedule,  by  means  of  a  system  of  orders,  and  thi'ough 
an  inspection  system  which  measures  the  work  both  as  to 
quantity  and  quahty.  He  controls  the  drafting  room,  the 
planning  room,  the  tool  room,  and  any  scientific  laboratories 
which  may  be  maintained.  Let  us  consider  briefly  some  of 
these  functions  of  the  works  manager. 

The  state  of  the  art.  —  The  duties  of  the  works  manager 
concern  themselves  with  men,  materials,  equipment,  and  proc- 
esses. r^Ien  he  has  to  hii'e.  train,  assign  to  positions,  super- 
intend, remunerate,  and  promote  or  discharge.  Materials  he 
must  select,  test,  piu-chase.  store,  use,  and  accoimt  for.  Equipn 
ment  he  is  expected  to  select  or  invent,  build  or  buy,  preserv'e 
and  repair,  and  finally  chscard  as  scrap.  Processes  need 
devising,  testing,  introducing,  superintendence,  enforcement, 
and  revision.  Responsibility  for  '"the  state  of  the  art  "  may 
be  used  as  an  expression  to  cover  a  wide  range  of  technical 
duties  resting  upon  the  works  manager  and  his  administrative 
helpers. 

150 


THE  FUNCTIONS  OF  THE  WORKS  MANAGER         151 

Motion  study.  —  A  new  instrumentality  has  recently  been 
devised  for  the  analysis  of  the  technique  of  production,  called 
motion  study  and  time  study.  Motion  study  has  been  defined 
as,  ''The  science  of  eliminating  wastefulness  resulting  from 
using  unnecessary,  ill-directed,  and  inefficient  motions."  ^  Its 
aim  is  ''to  find  and  perpetuate  the  scheme  of  least-waste 
methods  of  labor."  Time  study  is  defined  as,  ''The  art  of 
recording,  analyzing,  and  synthesizing  the  time  of  the  elements 
of  any  operation.  It  differs  from  the  well-known  process 
of  timing  the  complete  operation,  as  for  instance,  the  usual 
method  of  timing  the  athlete,  in  that  the  timing  of  time 
study  is  done  on  the  elements  of  the  process." 

Motion  study  aims  to  eliminate  useless  motions  and  save 
time  and  energy.  It  strives  to  link  motions  to  each  other  in 
the  most  economical  sequences,  so  that  the  end  of  one  move- 
ment is  as  nearly  as  may  be  the  starting  point  for  the  next.  It 
endeavors  to  substitute  a  few  effective  movements  for  a  multi- 
plicity of  ineffectual  ones,  as  when  a  mason  is  instructed  to  lift 
a  packet  of  twenty-four  brick  to  the  wall,  instead  of  laboriously 
transferring  each  brick  separately.  In  the  measure  that 
motion  study  succeeds  in  achieving  its  aim  it  discovers  the  best 
method,  and  prepares  the  way  for  a  standardization  of  processes 
and  equipment  such  as  will  permit  permanent  time  studies  to 
be  taken.  The  time  studies  in  turn  will  make  possible  the 
determination  of  standard  times  upon  the  basis  of  which 
employees  may  be  judged  and  rewarded. 

Standardization.  —  The  original  conception  of  a  standard 
is  of  something  standing,  permanent,  and  stable.  From  this 
comes  the  idea  that  what  is  fixed  may  be  used  as  a  signal  or 
mark  or  point  of  reference,  like  a  royal  standard  in  battle, 
about  which  many  can  rally,  or  after  which  they  can  follow. 
When  King  Henry  fought  in  Normandy  in  1109,  he  caused  his 

1  Frank  B.  Gilbreth,  Primer  of  Scientific  Management,  N.  Y.,  1912, 
p.  8.  An  illustration  of  the  application  of  motion  study  was  given  in 
Chapter  I,  in  the  account  of  the  revolution  of  the  art  of  bricklaying. 


152     ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

Standard-bearers  to  take  a  position  on  ground  favorable  for 
defense,  so  that  his  men  might  rally  about  it.  In  1120,  when 
he  decreed  that  the  ell,  or  ancient  yard,  should  be  the  exact 
length  of  liis  arm,  he  set  up  another  kind  of  standard  (the  first 
definite  one  of  length  in  England),  about  which  his  subjects 
might  rally  in  the  buying  and  selling  of  property.  The  word 
may  signif}^  that  which  is  prescribed,  or  that  which  ought  to 
be  prescribed;  in  all  cases  the  idea  of  uniformity  imposed  by 
authority  is  strong  in  it.  Standards  are  by  no  means  limited 
to  the  measurement  of  the  physical  properties  of  materials. 
They  may  be  established  for  anything  that  is  measurable.  If  it 
is  ordered  that  the  air  in  working  apartments  shall  be  changed 
three  times  per  hour,  a  standard  is  set  up;  if  it  is  ordered  that 
there  shall  be  no  belt  failures,  a  standard  of  efficiency  in  pre- 
hminary  repairs  is  established ;  if  a  given  time  is  allowed  for  a 
piece  of  work,  a  standard  of  speed  is  involved. 

The  process  of  standardization  is  the  attainment  of  such  an 
intimate  and  thorough  administrative  control  that  every  case 
of  performance  conforms  to  the  rule  laid  down.  When  per- 
formance depends  upon  a  variety  of  factors,  standardization 
means  the  control  of  all  the  factors.  When  one  factor  is  brought 
under  control,  the  circumstances  which  cause  the  variation  of 
the  other  factors  are  more  easily  studied.  Each  step  facilitates 
the  next.  ]\Ir.  F.  W.  Taylor  has  said,  ''Complete  standardiza- 
tion of  all  details  and  methods  is  not  only  desirable,  but  abso- 
lutely indispensable  as  a  prehminary  to  specifying  the  time  in 
which  each  operation  shall  be  done."^  Standardization  means 
uniformity.  Ideal  standardization,  or  standardization  used 
as  an  instrument  of  efficiency,  means  uniformitj^  in  using  the 
best.  This  element  of  uniformity  facihtates  mutual  under- 
standing, and  b3^  determining  what  is  to  happen  makes  possible 
prehminary  preparation. 

Written  orders.  —  Standards  are  authorized  by  standing 
orders  or  general  orders.     An  order,  as  we  have  seen,  is  the 

1  Shop  Management,  Am.  Soc.  of  Mech.  Eng.,  Paper  1003,  Sec.  284. 


THE  FUNCTIONS  OF  THE  WORKS  MANAGER         153 

communication  of  authority  and  information  from  a  superior 
to  a  subordinate.  In  a  small  business,  where  the  close  personal 
touch  makes  easy  a  mutual  process  of  adjustment,  it  is  allow- 
able to  give  orders  by  word  of  mouth;  but  in  large  organiza- 
tions, where  executives  are  called  upon  to  give  more  orders 
than  they  can  hold  in  memory,  or  where  the  number  of  points 
involved  in  individual  orders  may  overtax  the  retentive  powers 
of  operatives,  or  where  efficiency  depends  upon  the  exact  ad- 
justment of  men  to  each  other  who  are  not  in  personal  con- 
tact, orders  should  be  written.  A  permanent  objective  record  is 
advisable  where  considerable  periods  of  time  may  elapse  between 
the  giving  of  the  instructions  and  the  completion  of  the  task, 
or  where  instructions  must  be  transmitted  through  a  number  of 
persons.  In  a  large  establishment  an  order  may  pass  through 
as  many  vicissitudes  as  a  contract  between  independent  con- 
cerns: Uke  precautions  ought,  therefore,  to  be  taken  in  its 
preparation,  transmission,  and  recording.  Written  records 
are  a  safeguard  against  the  thoughtless  giving  of  orders.  They 
recall  the  official  to  a  realization  of  the  importance  of  what  he 
is  doing,  by  suggesting  to  him  that  the  record  may  be  examined 
by  his  superiors.  They  lead,  therefore,  to  fewer  orders,  and 
orders  of  better  quality.  A  written  order  serves  the  operative 
while  he  is  performing  his  task  as  a  means  of  reference.  Later 
it  offers  indisputable  evidence  as  to  what  he  was  told  to  do, 
and  so  protects  him  against  unjust  censure. 

Orders  as  text-books.  —  An  order  does  not  successfully 
convey  authority  so  long  as  the  one  who  receives  it  cannot 
ascertain  from  it  what  to  do  in  every  particular  which  involves 
the  exercise  of  the  discretion  proper  to  the  superior  officer. 
The  act  of  communicating  authority  shades  off  by  imper- 
ceptible degrees  into  the  communication  of  information.  A 
subordinate  is  never  so  open  to  instruction  as  when  receiving 
orders:  strategy  suggests  that  a  full  meeting  of  minds  should 
take  place  at  this  critical  moment.  Furthermore,  the  rule  of 
preliminary  preparation  requires  that  difficulties  should  be  fore- 


154      ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

Stalled  by  explicit  original  instructions,  rather  than  remedied 
by  supplementary  orders. 

Orders  and  scientific  management.  —  The  effort  to  utilize 
more  science  in  the  shop,  to  foresee  difficulties,  and  to  hold  the 
administration  responsible  for  a  wide  range  of  new  functions, 
has  naturally  involved  an  elaboration  of  the  order.  A  great 
step  was  taken,  years  ago,  in  engineering  estabUshments,  when 
drafting  rooms  began  to  send  down  blue  prints  to  the  shops, 
as  a  means  of  controlling  the  dimensions  of  work.  Scientific 
management  aims  to  extend  this  idea  and  establish  adminis- 
trative control  of  the  times,  methods,  and  equipments  used  in 
the  shop,  by  means  of  orders  issued  from  the  planning  room. 

A  complete  order  in  a  weU  managed  estabUshment  is  quite  an 
elaborate  aff"air.  In  an  engineering  estabhshment  it  includes, 
among  other  things,  necessary-  drawings,  descriptions  of  the 
work  to  be  done  and  the  methods  to  be  used,  lists  of  materials, 
tools,  attachments,  jigs,  and  gauges,  the  sequence  of  operations, 
the  hst  of  elementary-  minimum  times,  the  standard  or  pre- 
scribed time,  and  the  wage  rate.  It  is  no  shght  task  to  provide 
a  set  of  modern  standard  orders.  In  performing  this  task  there 
is  no  useless  work  done,  however,  for  there  is  no  point  decided 
which  will  not  ine^-itably  arise  for  decision  during  the  progress 
of  production.  To  use  standard  orders  means  simply  to  appoint 
capable  men  to  decide  matters  once  for  all,  in  advance,  and 
imder  favorable  conditions,  rather  than  allow  these  matters 
to  drift  until  they  are  encountered  in  the  progress  of  work,  so 
that  production  stops  while  the  workman  ponders  and  experi- 
ments, or  rummages  for  lost  tools,  or  travels  to  the  stock  room, 
or  hunts  his  boss. 

Analysis  of  customer's  contracts.  —  When  a  purchase  order 
is  received  at  a  works  manufactm*ing  such  an  article  as  stand- 
ard print  cloth,  it  is  not  necessary  for  the  operative  departments 
to  give  it  attention.  The  mill  is  kept  going  on  one  thing  the 
year  'round:  upon  the  selling  department  rests  the  duty  of 
disposing  of  the  product  and  avoiding  stoppages.     The  situa- 


THE  FUNCTIONS  OF  THE  WORKS  MANAGER         155 

tion  is  quite  different  when  a  customer's  order  arrives  at  a 
machine  shop  which  does  not  fill  orders  from  stock.  In  this 
case  the  new  contract  at  once  raises  the  question  of  possible 
deUvery  dates,  considering  the  amount  of  work  which  is  ahead 
of  it  in  the  shop,  and  the  urgency  of  the  case.  A  survey  of 
necessary  materials  must  be  made  to  ascertain  which  are  on 
hand,  and  which  must  be  ordered.  Special  drawings  may  be 
needed,  and  new  shop  orders  may  have  to  be  prepared.  If  a 
number  of  parts  are  to  meet  in  an  assembly,  it  will  be  necessary 
to  start  work  on  some  of  them  earher  than  on  others.  For 
these  and  other  reasons  the  selhng  department  should  consult 
with  the  making  departments  in  accepting  any  contracts 
which  call  for  special  plans  or  for  a  departure  from  regular 
schedules. 

Schedules.  —  In  recent  years,  manufacturers  have  taken  a 
leaf  from  the  book  of  railway  administrators,  in  controlling 
the  order  of  events.  A  railway  arranges  a  schedule  of  its 
trains,  and  the  despatcher  administers  it  with  a  view  to  keeping 
the  rolUng  stock  of  the  road  in  motion.  The  jobs  passing 
through  a  shop  may  be  Ukened  to  a  series  of  trains  passing 
over  a  hne  of  railway.  The  only  way  by  which  a  continuous 
advance  can  be  assured,  and  men  and  machines  can  be  kept 
at  work,  under  even  pressure,  is  to  lay  out  a  route,  estabhsh 
a  schedule  and  despatch  work  from  job  to  job. 

To  attempt  a  schedule  is  to  bring  up  the  question  of  the 
time  operations  should  consume,  and  to  focus  attention  upon 
the  causes  of  delay.  To  achieve  a  schedule  is  to  make  it  pos- 
sible for  a  management  to  know  the  per  cent  completed  on 
any  job,  to  fix  a  probable  dehvery  date,  to  regulate  the  advance 
of  the  component  parts  of  a  product  so  that  they  will  make  a 
simultaneous  appearance  in  the  assembly  room,  and  to  obtain 
such  a  power  of  directing  machines  and  men  from  one  task  to 
another,  that  adjustments  can  be  made  for  rush  jobs  or  unex- 
pected occurrences  without  confusion.  An  illustration  of  the 
effect  of  introducing  a  carefully  planned  schedule  (other  condi- 


156      ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

tions  remaining  unchanged)  is  afiforded  bj^  the  experience  of 
the  New  York  Xa^y  Yard  in  remo\ing  two  twelve-inch  guns 
from  the  turrets  of  the  U.S.S.  Connecticut  and  replacing  them 
by  two  new  guns.  This  job,  which  would  ordinarily  have  taken 
thirty  days,  was  finished  in  ten  days,  by  carefully  planning 
each  move  in  advance. 

Current  methods  of  foremanizing.  —  The  final  touch  between 
administration  and  men  is  maintained  through  the  foremen. 
In  ordinary  practice  there  is  but  one  foreman  to  a  shop.  This 
man  is  expected  to  look  after  tools  and  machines,  find  materials 
and  supphes  for  his  men,  instiTict  them  in  the  manner  of  doing 
work,  aiTange  tasks  so  that  every  one  is  kept  busy,  enforce  a 
proper  pace,  write  up  the  job  cards  and  other  records,  preser\'e 
order,  make  reports  as  requested  concerning  the  progress  of 
indi%'idual  jobs,  inspect  work  for  quaUty,  lend  a  hand  in  repairs, 
suggest  improvements  in  equipment,  and  give  an  opinion  on 
which  to  base  promotions  and  discharges.  This  is  a  tremendous 
range  of  functions,  and  it  is  not  sm^prising  that  many  responsi- 
bOities  of  an  administrative  character  shp  from  the  overloaded 
shoulders  of  the  foreman,  and  fall  upon  the  workman.  Hence 
the  general  demand  for  "experienced  "  workmen:  a  demand 
which  means  that  men  are  wanted  who  can  take  care  of  them- 
selves and  not  bother  the  foreman.  In  the  one-foreman  shop 
practice  remains  at  a  low  level,  while  yet  there  is  demanded 
excess  capacity  in  the  men,  above  what  is  needed  for  craft  work 
alone,  to  enable  them  to  perform  administrative  functions. 
When  responsibihties  of  a  discretionajy-  character,  concerrdng 
processes  and  equipment,  are  thrust  upon  craftsmen  in  this 
shiftless  way.  they  rest  upon  persons  not  trained  for  them,  not 
adequately  clothed  -ss-ith  authority,  without  efi'ective  leisiu-e 
from  manual  operations,  and  without  the  stimulus  of  a  prospect 
of  an  administrative  career. 

The  administrative  relations  for  a  single  shop,  in  an  ordinary 
estabhshment,  are  illustrated  by  chart  nmnl^er  27.  In  such  a 
shop  it  is  obvious  that  all  the  information  and  assistance  which 


Shop  SentcePepts. 


o 

o 

o 


o 
o 

ICC 


«« 


i 

en 


Gent  Supt 
or 

Wks.  Mgr 


'O^ 


o 


S 


u 


20  WorMen 


Fig.  27.     Chart  of  ArxHORiTi'  for  a   Shop  Uxder  Ordinary  Condi- 
tions OF  FOREMANIZING 


158      ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

the  higher  executives,  the  general  departments,  the  general 
manager,  and  the  ser^dce  departments  can  render  to  the  work- 
men must  pass  through  one  channel  —  the  single  foreman. 
If  there  are  twenty  executives  above  the  foreman,  and  twent}' 
operatives  under  him,  one  mind  is  called  upon  to  serve  as  the 
intellectual  connection  for  four  hundred  possible  personal 
relationsliips  between  superior  and  subordinate.  It  is  ob^dous 
that  we  have  here  an  administrative  blockade.  Here  is  a 
weak  hnk  in  the  chain  of  authority  connecting  higher  'vsith 
lower.  Scientific  management  has  put  its  finger  upon  this 
weak   spot. 

Functional  foremanship.  —  The  remedy  prescribed  is  to 
open  new  means  of  communciation  between  the  staff  on  the 
one  hand  and  the  operatives  on  the  other,  bj^  multiphdng  the 
number  of  foremen,  and  by  differentiating  their  duties  in  such 
a  manner  that  each  may  be  a  speciahst.  This  is  functional 
f oremanizing :  a  foreman  for  each  group  of  functions.  It  is 
the  appHcation  to  the  foreman  of  the  same  ideas  of  specializa- 
tion and  di^dsion  of  labor  as  scientific  progress  has  introduced 
among  experts,  and  as  the  subdi\'ision  of  trades  has  brought 
about  among  workmen.  A  particular  plan  of  functionahzing, 
recommended  by  the  leaders  of  scientific  management  for  cases 
where  circumstances  permit  a  reasonably  complete  develop- 
ment of  the  idea,  is  to  install  eight  foremen;  four  to  serve  as 
clerks  in  a  planning  room,  and  four  to  serve  as  bosses  in  the 
shop.     The  four  clerks  may  be  thus  described: 

1.  The  Routing  or  Order  of  Work  Clerk,  who  determines 
the  order  of  jobs  at  each  machine  or  production  center. 

2.  The  Instruction  Card  Clerk,  who  prepares  the  shop 
orders,  including  the  standard  instructions,  the  fists  of  materials, 
the  standard  times,  etc. 

3.  The  Cost  and  Time  Clerk,  who  sees  that  all  time  and 
material  used  is  correctly  reported  according  to  the  job,  work- 
man, and  shop,  so  that  correct  pajToll  and  other  cost  records 
can  be  made. 


THE  FUNCTIONS  OF  THE  WORKS  MANAGER         159 

4.  The  Shop  DiscipHnarian,  who  keeps  the  personal  records 
on  which  promotions  and  discharges  are  based. 

There  are  four  bosses  — 

5.  The  Machine-speed  Boss,  who  sees  that  the  machine 
speeds  indicated  on  the  instruction  cards  can  be  and  are  attained 
or  are  reported  back  for  correction.  This  ofi&cer  does  not  speed 
up  the  men,  except  incidentally  in  getting  the  prescribed  per- 
formance out  of  mechanically  impelled  apparatus.  He  must  be 
able  to  convince  a  doubting  workman  that  a  machine  can  be 
safely  operated  as  prescribed,  by  turning  to  and  doing  the 
job  himseK. 

6.  The  Inspector,  charged  with  maintaining  the  quahty  of 
the  output. 

7.  The  Repair  Boss,  who  is  the  engineer  in  charge  of 
repairs. 

8.  The  Teacher,  sometimes  called  the  Gang  Boss,  who  is  the 
old  foreman  relieved  of  many  duties,  and  developed  into  a 
specialist.  His  duty  is  to  see  that  the  men  are  provided  with 
jobs,  have  the  necessary  equipment,  understand  instructions, 
and  manipulate  their  work  properly. 

This  plan  of  foremanizing  is  represented  in  graphic  form  in 
chart  number  28. 

A  new  yeomanry.  —  The  project  to  greatly  increase  the 
number  of  shop  executives  has  a  significance  aside  from  the 
increased  efficiency  which  is  the  primary  aim.  If  such  a  new 
middle  class  is  formed  between  the  capitalistic  and  artisan 
classes,  it  means  that  there  will  be  a  host  of  interpreters  of  the 
management  to  the  workmen,  and  of  the  workmen  to  the  man- 
agement, so  that  each  side  will  understand  the  other  better. 
Such  a  body  of  foremen  should  develop  a  notable  power  of 
opinion.  They  may  prove  to  be  such  a  social  cement  as  to 
entitle  them  to  be  considered  a  new  yeomanry,  taking  the 
place  of  the  diminishing  yeomanry  of  small  independent  pro- 
prietors. The  existence  of  a  large  class  of  subordinate  adminis- 
trators who  must  be  familiar  with  shop  processes,  will  greatly 


Higher  Executives 


Shop  Service  Depts 


GenllDepts. 


20  Woitaien 


Fig.  28.  Chakt  of  Authority  for  a  Shop  under  Functional  Fore- 

MANSHIP 


THE  FUNCTIONS  OF  THE  WORKS  MANAGER         161 

increase  the  opportunities  of  promotion  for  exceptional  work- 
men. The  functions  of  such  men  will  serve  as  a  training  school 
in  the  managerial  art,  giving  promise  that  chief  executives 
may  continue  to  rise  from  the  ranks,  as  in  the  past;  giving 
promise,  also,  that  labor  organizations  may  at  length  be  officered 
by  men  who  have  an  adequate  knowledge  of  costs,  of  capital 
risks,  and  of  managerial  difficulties. 

Theoretical  and  practical  considerations  in  designing.  —  It 
is  not  difficult  to  find  graduates  of  engineering  schools  who  can 
make  designs  which  conform  to  the  laws  of  stress  and  resistance, 
or  which  are,  as  the  phrase  goes,  theoretically  correct.  It  is 
difficult,  however,  to  find  men  for  designing  departments  who 
combine  with  this  capacity  a  knowledge  of  manufacturing 
processes  and  of  the  trials  and  tribulations  of  the  user. 

Good  design.  —  Practical  designs  in  machinery  avoid  diffi- 
cult problems  in  moulding,  and  shun  filets  of  compound  curves 
for  machined  surfaces.  They  reduce  highly  finished  surfaces 
to  a  minimum,  employ  standard  sizes  of  bolts,  screws,  and 
gears,  and  prescribe  work  which  can  be  turned  out  with  stand- 
ard arbors,  bores,  and  tapers.  A  practical  designer  gives  broad 
bearings  at  important  points,  provides  easy  adjustments  to 
compensate  for  wear,  equips  feed  screws  with  index  dials,  care- 
full}^  plans  the  lubrication  system,  and  in  general  aims  at  sim- 
plicity with  positive  action  and  few  parts.  In  designing 
machine  tools  he  makes  detachable  tool  rests  and  attachments, 
so  that  preparations  can  be  made  off  the  machine.  Control 
levers  are  so  placed  that  there  will  be  a  minimum  of  reaching 
and  bending  for  the  workman.  Dangerous  parts  are  housed, 
and  delicate  ones  protected,  and  yet  accessibility  is  preserved  for 
lubrication,  adjustment,  and  repair. 

The  significance  of  the  test  given  to  a  design  by  manufactur- 
ing it  and  using  it  is  well  brought  out  by  Mr.  Chas.  L.  Griffin. 
A  successful  design,  he  says,  cannot  be  out  of  harmony  with 
the  organized  methods  of  production.  Hence  in  the  art  of 
machine  design  is  involved  a  knowledge  of  the  operations  in 


162      ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

all  the  departments  of  a  manufactming  plant.  The  theoretical 
design  must  be  so  clothed  and  shaped  that  its  production  may 
be  cheap,  invohing  simple  and  efficient  processes  of  manu- 
facture. It  must  be  judged  by  the  latest  shop  methods  for 
exact  and  maximimi  output.  A  machine  may  be  correct  in  the 
theor>^  of  its  motions:  it  may  be  correct  in  the  theoretical  pro- 
portions of  its  parts;  it  maj^  even  be  correct  in  its  operations 
for  the  time  being;  and  yet  its  comphcation,  its  misdirected 
and  wasteful  effort,  its  lack  of  adjustment,  its  expensive  and 
irregular  construction,  its  lack  of  compactness,  its  inadequate 
supply  of  oil  for  the  moving  parts,  its  difficulty  of  ready  repair, 
its  inabihty  to  hold  its  own  in  competition  —  any  of  these 
may  throw  the  balance  to  the  side  of  failure. 

"Eveiy  detail  of  the  successful  machine  has  been  picked 
from  a  score  or  more  of  possible  ideas.  One  by  one,  ideas  have 
been  worked  out,  laid  aside,  and  others  taken  up.  Little  by 
little,  the  special  fitness  of  certain  devices  has  become  estab- 
lished, but  only  by  patient,  careful  consideration  of  others 
which  at  first  seemed  equally  good.  Every  line  and  corner 
and  stu'face  of  each  piece,  however  small  that  piece  may  he,  has 
been  through  the  refining  process  of  theoretical,  practical,  and 
commercial  design.  Eyery  piece  has  been  followed  in  the 
mind's  eye  of  its  designer  from  the  crude  material  of  which 
it  is  made,  through  the  various  processes  of  finisliing,  to  its 
final  location  in  the  completed  machine."  ^ 

The  correlation  of  designing  and  manufacturing.  —  How 
can  the  production  of  good  designs  be  ensured?  One  thing 
which  will  help  is  to  provide  for  the  designer  convenient  lists 
of  the  machines,  tools,  and  attachments  in  the  shop,  and  to 
prepare  enumerations  and  diagrams  of  the  various  styles  of  work 
which  can  be  produced  in  regular  coiu'se.  Shop  conferences 
should  be  held  to  bring  designers  and  men  of  shop  experience 
together.  It  should  be  the  rule  to  refer  all  points  of  design 
which  involve  the  purchase  of  new  equipment  to  an  authority 
^  Chas.  L.  Griffin,  Machine  Design,  Chicago,  1908,  pp.  3-4. 


THE  FUNCTIONS  OF  THE  WORKS  MANAGER         163 

higher  than  the  designer  before  the  drawings  and  specifications 
are  finally  approved.  Designers  should  be  required  to  follow 
personally,  in  the  shop,  the  progress  of  manufacture  of  their 
experimental  models. 

Design  tested  by  use.  —  Use  is  the  supreme  test.  The  con- 
sumer sorrowfully  gathers  much  wisdom.  Designers  should 
not  only  study  their  productions  in  experimental  operation, 
and  continue  tests  to  failure,  but  should  study  their  products 
away  from  the  plant,  in  actual  use,  in  the  consumer's  hands. 
They  should  gather  up  discarded  and  worn  out  specimens  to 
ascertain  what  ended  the  useful  life,  and  find  out  why  the  design 
fell  short  of  the  coordination  of  'Hhe  wonderful  one-horse 
chaise." 

Standards  of  accuracy.  —  Upon  the  general  superintendent 
rests  the  responsibility  of  maintaining  such  standards  of  accu- 
racy as  will  preserve  intact  the  qualities  aimed  at  in  the  original 
design  of  his  product,  and  will  permit  easy  assembling,  and 
allow  of  interchangeabihty  of  parts.  This  involves  especially 
the  control  of  such  matters  as  clearance,  allowance,  and  toler- 
ance. Clearance  is  a  quahty  of  dimensions  by  which  two 
adjacent  surfaces  stand  clear  of  each  other.  Allowance  is  a 
difference  in  the  dimensions  prescribed  for  two  parts  to  produce 
a  certain  quality  of  fit.  Tolerance  is  a  departure  from  dimen- 
sions permitted  as  an  unavoidable  or  unimportant  imperfection 
in  workmanship. 

Tolerance  dimensions.  —  The  control  of  all  dimensions 
which  involve  allowance  or  tolerance  should  be  taken  out  of 
the  hands  of  foremen  and  mechanics  and  concentrated  in  the 
hands  of  the  superintendent  and  designer.  This  can  be  done 
either  by  placing  upon  the  drawings  a  single  figure  for  each 
dimension,  with  the  addition  of  the  plus  or  minus  departures 
from  it  which  will  be  allowed,  or  by  giving  two  dimensions 
which  are  to  be  the  outside  ones  tolerated.  By  indicating  a 
large  tolerance  for  unimportant  dimensions,  and  a  less  one 
for  more  particular  parts,  the  time  and  skill  of  the  shops  may  be 


164      ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

concentrated  by  the  administration  upon  those  parts  of  the 
work  where  they  will  count  for  the  most. 

Measurement  of  output.  —  If  it  is  desired  to  collect  a  system 
of  unit  costs,  or  to  pay  men  on  the  basis  of  performance,  ways 
must  be  found  of  measuring  the  work  done.  To  do  this  presents 
no  special  problem  where  a  good  division  of  labor  exists  and 
conditions  are  standardized.  But  where  there  is  variety  of 
task  and  condition,  as  in  the  construction  trades,  the  choice 
of  measure  and  the  administration  of  it  is  not  easy.  For 
painting  and  plastering  and  shingling  the  square  yard  may  be 
used  to  state  amounts,  but  it  will  mean  little  unless  the  quality 
of  the  work  is  determined.  In  concrete  work  the  cubic  con- 
tents of  a  structure  can  be  measured,  but  such  a  record  will 
merely  summarize  the  result  of  handUng  materials,  building  and 
erecting  frames,  removing  forms,  placing  reenforcing  steel, 
tending  the  mixer,  moving,  pouring,  and  ramming  the  liquid 
concrete,  and  finishing  exposed  surfaces.  "In  engineering 
construction,"  Gillette  and  Dana  tell  us,  ''the  cubic  yard  is  a 
very  common  unit  upon  which  contract  prices  are  based,  but 
the  cubic  yard  itself  is  frequently  a  very  uncertain  unit  of  per- 
formance, for  it  is  a  composite  of  other  units.  Thus,  in  rock 
excavation  there  are  several  distinct  operations  involved, 
which  may  be  enumerated  as  follows;  1,  drilling;  2,  charging 
and  firing  (or  blasting);  3,  breaking  large  chunks  to  suitable 
sizes;  4,  loading  into  cars,  carts,  skips,  or  the  like;  5,  trans- 
porting; 6,  dumping."  ^  The  aim  should  be  to  measure  ele- 
ments rather  than  composites:  in  mathematical  phrase,  to 
measure  variables  rather  than  their  functions.  Hence  the 
measurements  sought  should  be,  as  far  as  possible,  of  elementary 
performances  or  single  steps  of  manufacture,  rather  than  of 
chains  of  operations.  The  work  of  single  persons  or  gangs  or 
of  distinct  classes  of  persons  should  be  chosen  rather  than  that 
of  groups  of  persons  pursuing  unlike  crafts.     Thus,  in  concrete 

^  H.   P,   Gillette  and  R.  T.   Dana,   Cost  Keeping  and  Management 
Engineering,  N.  Y.,  1909,  p.  50. 


THE  FUNCTIONS  OF  THE  WORKS  MANAGER         165 

work,  measures  may  be  taken  of  the  loads  of  sand  brought 
up,  the  bags  of  cement  mixed,  the  board  feet  of  framing  con- 
structed, the  number  of  standardized  and  individually  keyed 
forms  set  up  or  taken  down,  the  square  yards  surfaced,  etc. 
In  rock  excavation  account  may  be  taken  of  the  hneal  feet  of 
holes  drilled,  the  number  of  charges  exploded,  the  tons  or  yards 
of  rock  broken  up,  the  amounts  of  material  loaded,  unloaded, 
and  carried  given  distances  by  given  means  of  transportation. 

Inspection.  —  Among  the  objects  to  be  attained  by  a  system 
of  inspection  of  products  are,  to  detect  poor  materials,  to  dis- 
cover defective  processes  or  inadequate  apparatus,  to  sift  and 
educate  worlonen,  to  save  labor,  as  in  the  hand  fitting  of  ma- 
chine parts  at  assembly,  or  the  improvement  of  textile  fabrics 
woven  with  defective  yarns,  to  avoid  the  continuation  of  work 
on  material  already  spoiled,  to  ascertain  the  loss  allowance  nec- 
essary in  cost  estimates,  and  to  escape  loss  of  prestige  from 
the  delivery  of  defective  goods  to  customers.  Inspection  is, 
therefore,  a  check  of  very  broad  utihty.  The  chief  problem  of 
it  is  to  so  analyze  and  record  discovered  defects  and  their  causes 
that  an  account  can  be  opened  with  each  man,  and  machine, 
and  batch  of  material,  and  operation,  and  department,  so  that 
the  inferences  drawn  may  be  specific  and  lead  to  specific  reforms. 

The  closeness  of  inspection  will  be  proportionate  to  the  losses 
which  undetected  defects  may  cause.  It  will  be  greatest  where 
hfe  and  limb  are  involved,  as  in  the  case  of  signal  oil  and  steel 
rails.  Whether  it  should  be  terminal  inspection  or  intermediate 
between  processes,  will  depend  upon  the  probability  that  addi- 
tional work  will  be  done  on  defective  pieces,  and  upon  the  danger 
of  defective  work  being  covered  up  by  subsequent  steps  of 
manufacture.  The  process  of  inspection  may  be  automatic, 
voluntary,  or  professional.  Automatic  inspection  occurs  where 
a  jig  or  fixture  is  made  in  such  a  way  that  work  will  not  fit  into 
it  unless  the  previous  steps  of  manufacture  have  been  correct. 
Voluntary  inspection  occurs  when  men  are  paid  according  to 
the  amount  of  perfect  work  finished  by  them,  and  hence  such 


166      ADMIXISTRATIOX  OF  INDUSTRIAL  ENTERPRISES 

workman  become  critical  of  pieces  which  will  be  counted  out, 
and  of  materials  likely  to  cause  them  delay.  Professional  in- 
spection is  a  function  of  administration.  It  tends  to  pass 
into  the  hands  of  speciahsts  in  the  measiu*e  that  defects  are 
subtle  or  their  causes  are  difficult  to  trace. 

The  tool  room.  —  The  immediate  material  agency  in  manu- 
facturing is  the  point  of  the  tool.  The  problems  of  labor  and 
management  largely  concentrate  upon  the  task  of  bringing  a 
succession  of  small  cutting,  grinding,  or  hammering  sm^aces 
into  contact  with  materials,  imder  given  conditions  as  to  stress, 
angle,  temperature,  and  the  like.  A  bench  worker  depends 
for  the  amount  and  quaht}'  of  his  day's  work  upon  the  sharp- 
ness of  a  few  inches  of  cutting  edge  on  his  chisels.  A  cUtch 
digger  may  waste  ten  per  cent  of  his  energy-  by  forcing  an  extra 
eighth  of  an  inch  of  pick  point  into  the  clay.  So  important 
to  any  establishment  is  the  condition  of  a  few  poimds  of  steel 
on  the  points  of  the  tools  that  efficiency  demands  that  the 
design  of  tools,  the  matter  of  an  adequate  supply,  the  sharpen- 
ing and  repairing  of  them,  and  their  accessibihty.  should  be 
taken  out  of  the  hands  of  workmen  and  general  foremen  and 
concentrated  in  the  hands  of  speciahsts  who  can  apph'  system 
and  science  to  the  tasks. 

A  tool  room  may  be  described  as  a  department  where  tools, 
attachments,  and  instruments  of  precision  are  selected,  designed, 
manufactm-ed,  stored,  inspected,  sharpened,  reforged,  issued 
on  authority,  and  accoimted  for.  By  being  a  conspicuous 
instance  of  a  place  for  everv-thing  and  ever>i:hing  in  its  place, 
it  saves  time  in  getting  equipment  promptly  into  its  work. 

Machine  stripping.  —  The  time-consuming  practice  of  ma- 
cliine  stripping  which  goes  on  in  ordinary  shops  has  been 
thus  described  by  Lieut  .-Col.  'VMieeler  of  the  Ordnance  Depart- 
ment of  the  U.S.A.  "In  the  usual  shop,  with  some  machines 
Mng  idle,  if  a  man  at  a  machine  wants  a  dog  or  a  bolt  or  a 
clamp,  the  easiest  way  for  him  to  get  it  is  to  go  to  the  nearest 
idle  machine  and  help  himself;  and  this  is  what  he  usually  does, 


THE  FUNCTIONS  OF  THE  WORKS  MANAGER         167 

except  that  he  usually  takes  two,  if  available,  and  stows  one 
away  near  his  machine  for  possible  future  use.  When  the  idle 
machine  is  wanted,  much  time  is  lost  in  supplying  it  with  the 
necessary  equipment.  Again,  a  new  man  is  taken  on  and  put 
at  one  of  the  idle  machines  and  given  a  job;  he  does  not  know 
the  shop  and  he  limits  around  for  the  necessary  equipment, 
and  after  losing  considerable  time  goes  to  the  foreman,  who  will 
send  him  to  the  tool  room,  where  he  will  probably  be  told  that 
the  appliance  is  with  the  machine.  And  he  goes  from  one  man 
to  another,  trying  to  get  the  necessary  equipment.  After  finally 
succeeding  in  starting  on  his  work,  he  finds  something  else 
missing,  and  he  has  to  go  through  the  same  thing  again,  and  so 
on  until  he  learns  to  go  to  the  nearest  idle  machine  and 
see  what  he  can  pick  up."  ^  In  such  a  shop  each  workman 
will  possess  a  miscellaneous  assortment  of  cutting  tools,  and 
will  have  indi\ddual  fancies  and  secrets  as  to  angles  and  sizes. 
Much  time  will  be  spent  b}^  the  workman  in  hunting  for  mis- 
placed tools,  and  in  examining  them  and  experimenting  with 
them,  and  in  grinding,  or  waiting  at  the  emery  wheel,  during 
all  of  wliich  his  machine  stands  idle.  The  tools  will  be  used 
in  all  degrees  of  dulness,  and  in  all  varieties  of  shape.  From 
lack  of  standardized  conditions  standard  times  will  be  im- 
possible. 

Tool  accounting.  —  A  proper  system  provides  each  work- 
man with  a  machine  kit,  including  micrometers,  straps,  bolts, 
files,  etc.,  but  not  cutting  tools.  The  workman  signs  for  the 
kit,  and  it  remains  permanently  with  his  machine.  Cutting 
tools  will  be  ground  by  an  expert,  to  standard  shapes,  as 
indicated  by  the  science  of  metal  cutting.  The  proper  tool  for 
each  kind  of  work  will  be  specified  in  the  standard  instructions. 
A  complete  outfit  of  tools  in  perfect  condition  will  be  issued  by 
the  tool  room  to  the  workman  each  time  the  job  is  assigned. 
On  the  completion  of  a  job,  the  cutting  tools  used,  together 

^  Hearings  before  the  Sp.  Com.  of  the  H.  of  R.  on  The  Taylor  and 
Other  Systems  of  Shop  Management,  Washington,  1912,  Vol.  I,  p.  113. 


168      ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

with  any  special  jigs  and  fixtures,  will  be  retiu'ned  to  the  tool 
room,  to  be  examined  and  put  in  condition  before  being  issued 
again. 

BIBLIOGRAPHY 

Taylor,  T.  W.:  Shop  Management,  X.  Y..  1911,  especially  pp.  9-5-110, 
on  Functional  Foremanizing.  and  pp.  110-12S,  on  The  Planning  De- 
partment. 

Parklim-st.  F.  A.:  Applied  Methods  of  Scientific  Management.  X.  Y., 
1912,  Ch.  Ill,  The  Planning  Department:  Ch.  IV,  Systematic  Rout- 
ing a  Xecessity;  Ch.  VI,  6A,  The  Standardization  of  Methods  and 
Tools. 

Kimball.  D.  S.:  Principles  of  Industrial  Organization.  X.  Y..  1913.  Ch. 
VIII.  Planning  Departments. 

Wilt,  A.  D. :  The  Relation  of  Inspection  to  Money-Making  Shop  Manage- 
ment, Engineering  Mag.,  Feb.  1907,  pp.  72.5-736. 

Gillette,  H.  P.,  and  R.  T.  Dana:  Cost  Keeping  and  Management  Engi- 
neering, X.  Y..  1909.  Ch.  II,  Rules  for  Securing  Minimum  Cost; 
Ch.  IV,  Measuring  the  Output  of  Workmen. 

Carpenter.  C.  U.:  Profit  Making  in  Shop  and  Factory  ^Management,  X.  Y., 
190S.  Ch.  IV.  The  Designing  and  Drafting  Department;  Ch.  V, 
The  Tool  Room:   The  Heart  of  the  Shop. 

Robinson,  A.  W.:  The  Relation  of  the  Drawing  Office  to  the  Shop  in 
Manufactin-ing,  Trans,  of  Am.  Soc.  of  Mech.  Eng..  1S94,  Xo.  596. 

Jacobs.  H.  W.:  Bettennent  Briefs.  X.  Y..  1909.  Ch.  on  General  Tool 
System  of  A.,  T.  and  S.  F.  Ry..  pp.  204-222. 

Barth,  Carl  G.:  Slide  Rules  for  the  Machine  Shop  as  a  Part  of  the  Taylor 
System  of  Management,  Trans,  of  Am.  Soc.  Mech.  Eng..  1901, 
Vol.  25,  Xo.  1010. 

Diemer.  Hugo:  Factory  Organization  and  Administration.  X.  Y.,  1910. 
Ch.  XXI,  Inspection  Methods  in  Modern  ^Machine  Shops. 


CHAPTER  IX 
COST  ACCOUNTING 

If  we  picture  to  ourselves  a  typical  manufacturing  plant 
engaged  in  producing  a  variety  of  articles,  and  if  we  attempt 
to  enumerate  in  our  minds  the  various  expenditures  which  will 
be  made  in  the  process  of  manufacture,  we  shall  not  be  long 
in  observing  that  these  expenditures  divide  themselves  into 
three  main  groups.  The  first  of  them  includes  the  materials  of 
which  the  product  is  composed,  the  second  comprises  the  labor 
directly  applied  to  these  materials.  The  third  group  is  com- 
posed of  all  those  remaining  items  of  outlay  which  do  not  at- 
tach themselves  in  a  direct  and  definite  way  to  the  production 
of  any  individual  unit  of  output.  The  first  and  second  classes 
of  expenditure  are  easily  computed;  when  combined  they  form 
what  is  called  prime  cost.  The  third  group  is  known  as  factory 
burden,  or  overhead,  or  simply  as  '^ expense." 

In  a  machine-building  establishment,  these  three  elements 
of  costs  are  approximately  equal  in  amount.  And  if  to  them 
we  add  interest  on  the  capital  invested  —  an  item  which  is, 
properly  speaking,  a  profit,  but  which  for  certain  purposes  it  is 
convenient  to  handle  as  a  cost  —  we  should  have  four  approx- 
imately equal  subdivisions  of  outlay.^  In  cotton  spinning  the 
cost  of  direct  materials  is  nearly  twice  the  direct  labor  cost: 
factory  burden  nearly  equals  direct  labor:  interest  charge  is  a 
Httle  more  than  one-half  the  direct  labor  cost.  In  the  boot  and 
shoe  industry  direct  materials  will  average  somewhat  over  two 

1  James  Hartness,  Human  Factors  in  Works  Management,  N.  Y.,  1912, 
pp.  155-156. 

169 


170     ADMIXISTRATIOX  OF  IXDUSTRIAL  ENTERPRISES 

and  one-half  times  direct  labor,  while  factory-  burden  will 
average  a  httle  less  than  seven-eighths  of  direct  labor,  and 
interest  will  be  not  much  over  one-sixth  of  direct  labor  cost. 
In  petroleum  refining  a  typical  cost  calculated  by  the  Bureau 
of  Corporations  showed  direct  material  four  times  direct  labor, 
and  factory  burden  less  than  one-half  of  direct  labor.  A  fair 
interest  charge  would  be  over  one-thu'd  of  direct  labor  cost. 


Selling  Price 


-<- 
-<- 
-<■ 


Cost 


Manufacturing  Cost 


Shop  Cost 


Prime  Cost 


Direct       m  t    'al       factory        General        Selling 
Labor     i  Expense        Expense       Expense 


Profit 


Fig.  29.     Analysis  of  Selling  Price 

The  general  relations  of  different  classes  of  costs  to  each  other 
may  be  illustrated  by  a  diagram  which  separates  the  component 
parts  of  selhng  price. 

Direct  material  cost.  —  The  most  tangible  and  specific 
beginning  of  cost  is  when  raw  materials  are  purchased,  out  of 
which  a  finished,  product  is  to  be  made.  TMien  materials  are 
used  exclusively  for  a  particular  job  —  a  job  being  a  series  of 
productive  steps  ending  in  the  completion  of  a  unit  or  lot  of 
product  —  and  when  it  is  easy  to  measure  the  amomit  of  the 
material  used  in  connection  with  each  job,  the  cost  of  such 
materials  may  be  charged  directly  as  direct  material  cost.  The 
original  cost  may  be  interpreted  either  as  the  actual  purchase 
price,  or  the  last  price,  or  the  average  price.     Into  the  laid- 


COST  ACCOUNTING  171 

down  cost  there  enter  other  items,  such  as  freight,  cartage,  and 
the  expenses  of  receiving,  storing,  and  issuing.  These  items 
will  be  difficult  to  subdivide  onto  each  batch  of  materials  requi- 
sitioned for  a  job,  and  so  will  be  most  practically  handled  as 
a  part  of  expense. 

When  we  turn  to  such  materials  as  coal,  machine  oil,  belting, 
polishing  substances,  and  the  like,  we  find  that  if  we  attempt 
to  calculate  the  amounts  used  on  individual  jobs  and  fix  the 
costs  of  such  amounts,  we  shall  be  engaged  in  a  hair-splitting 
operation.  The  practical  course  is,  therefore,  to  throw  these 
sums  into  expense.  As  Mr.  H.  A.  Evans  says,  ''Like  direct 
labor  there  is  some  material  that  enters  into  the  product  that 
cannot  be  charged  as  direct  material,  but  must  be  charged  indi- 
rectly: glue  used  in  a  joiner  shop  or  pattern  shop;  a  few  nails 
or  screws  used  on  a  repair  job;  a  small  amount  of  solder  on 
sheet-metal  work;  a  few  cotter  pins  on  a  job  in  the  machine 
shop;  the  red  lead  or  litharge  used  in  making  joints;  the  mate- 
rial used  with  the  oxy-acetylene  welding  plant,  and  many  other 
similar  items.  On  account  of  the  difficulty  of  measuring  the 
quantity  used  of  some  of  this  material  and  the  small  amounts 
used  of  other  classes,  it  is  impracticable  to  charge  these  direct, 
and  they  must  be  included  in  the  indirect  charges."  ^ 

Direct  labor  cost.  —  Turning  to  the  labor  used  to  make  a 
salable  product,  we  find  no  difficulty  in  charging  directly  the 
wages  of  those  persons  who  deal  immediately  and  exclusively 
with  the  work  of  a  single  job,  and  are  engaged  for  a  considerable 
interval  of  time  upon  each  job.  The  expenses  of  the  men  at 
the  benches,  or  in  control  of  the  machines,  or  at  work  on  the 
erecting  floor,  can  be  disposed  of  easily.  But  when  we  consider 
the  expense  of  truckers  and  crane  handlers  and  foundry  helpers, 
who  pass  rapidly  from  job  to  job,  spending  perhaps  a  few  min- 
utes on  each  task,  we  perceive  that  it  would  be  impractical  to 
dissect  the  time  of  such  men  into  minute  fragments  for  charging 

*  H.  A.  Evand,  Cost  Keeping  and  Scientific  Management,  N.  Y.,  1911, 
p.  27. 


172      ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

purposes;  and  so  these  items  pass  over  into  expense.  Because 
of  a  somewhat  different  trouble  in  dissection,  the  wages  and 
salaries  of  foremen  and  superintendents,  of  the  office  force, 
and  of  the  general  manager,  and  of  all  others  whose  activities 
serve  the  interests  of  many  jobs  concurrently,  must  be  carried 
to  expense. 

Labor  as  a  cost.  —  There  is  httle  difficulty  in  getting  the  total 
labor  time  or  labor  cost  of  any  man  or  of  any  shop,  for  the 
attendance  record  taken  together  with  the  wage  rates  will 
yield  it.  But  resistance  is  often  encountered  in  getting  the 
labor  time  or  wage  cost  of  each  job,  because  workmen  object 
to  making  a  highly  detailed  record,  fearing  that  the  manage- 
ment will  use  the  statistics  for  censure  or  for  a  speeding-up 
process. 

Human  beings  are  a  cost,  but  more  than  a  cost.  While  the 
purely  material  elements  of  cost  respond  in  a  passive  and 
mechanical  way  to  any  cost  sj^stem  which  may  be  emplo3^ed  in 
the  interest  of  economy  and  efficienc}^,  when  S3^stem  is  applied 
to  labor,  an  independent  power  of  will  must  be  reckoned  with. 
Here  the  science  of  accounting  becomes  a  part  of  a  greater  art 
of  handling  human  nature.  To  one  method  of  cost  collecting 
operatives  may  respond  with  indifference  or  generosity,  to 
another  plan  which  in  its  accounting  significance  ma^^  not  be 
materially  different,  they  may  reply  with  the  bitter  resistance 
of  obstructive  tactics.  It  is  not  safe  for  an  administrator  to 
long  regard  labor  purely  from  the  standpoint  of  cost. 

Expense  items.  —  We  now  come  to  the  category  of  "expense,'' 
of  which  sometliing  has  already  been  said.     We  have  noted 
that  expense  includes  — 
(a)  manufacturing  supplies,   such  as  coal,   machine  oil,   and 

belting, 
(6)  incoming  freight  charges,  and  the  expenses  of  supply  de- 
partments, 
(c)  wages  of  the  service  force,  such  as  truckers,  crane  handlers, 
and  foundry  helpers, 


COST  ACCOUNTING  173 

{d)  wages  and  salaries  of  foremen,  superintendents,  office  force, 
and  general  administrators. 
To  these  items  we  may  add  others  — 
(e)  the  expenses  of  equipment,  including  all  current  charges 
on    account    of    providing    and    maintaining    buildings, 
machiner}^  and  power  plant, 
(/)  the  cost  of  service   departments,  such  as  the  tool  depart- 
ment, the  drafting  room,  the  planning  room,  the  account- 
ing department,   the  employment  department,   and  the 
legal  department, 
{g)  selhng  expenses,   including  the  advertising  appropriation, 
and  the  expenses  of  administering  credits  and  collections. 
Underestimation    of    expense.  —  The    above    fist   indicates 
that  expense  is  an  exceedingly  heterogeneous  group.     It  is 
easy  to  overlook  some  of  the  tilings  which  should  be  put  into 
it.     There  are  items  belonging  to  it  which  are  without  tangible 
reminders  at  the  plant,  such  as  the  cost  of  legal  advice.     There 
are  expenses  which  ov^j  mature  in  the  future,  so  that  current 
charging  means  a  calculation  from  past  experience;    such  as 
the  allowance  for  bad   debts.     Materials  are  visible  to  the 
naked  eye;    laborers  troop  in  and  out  for  their  pay;    but  for 
the  complete  enumeration  of  expense  items,  cost  accounting 
requires  the  aid  of  the  comprehensive  surveys  of  proprietorship 
accounting. 

Expense  items  as  functions.  —  Some  of  the  items  of  expense 
are  pure  functions  of  time,  hke  taxes,  rent,  insurance,  obsoles- 
cence, and  a  portion  of  depreciation.  These  outlays  are  incurred 
as  a  result  of  the  mere  existence  of  a  business,  regardless  of 
whether  the  production  of  a  period  is  large  or  small,  or  indeed 
whether  the  establishment  be  running  or  closed  down.  Other 
expense  items,  such  as  those  for  power,  supplies,  and  salaries, 
will  rise  and  fall  with  the  activity  of  the  business,  though  not 
in  strict  proportion  to  it. 

Grouping  of  expense  items.  —  Expense  items  may  be 
grouped  for  spreading  purposes  with  either  of  two  objects  fore- 


174      ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

most.  The  aim  maj^  be  to  put  such  items  together  as  tend  to 
rise  and  fall  in  response  to  the  same  law  of  variation,  so  that 
the  law  may  be  used  as  the  principle  of  spreading.  On  the 
other  hand,  the  grouping  of  items  may  have  for  its  object  to 
bring  together  all  the  costs  for  wliich  some  officer  is  responsible, 
so  that  the  question  of  his  efficiency  ma}'  be  brought  home  to 
hun  with  clearness.  Either  of  these  principles  of  grouping 
calls  for  the  separation  of  manufacturing  expenses  from  selhng 
expenses.  If  to  direct  cost,  which  is  composed  of  direct  material 
and  direct  labor,  we  add  all  the  expense  or  burden  which 
belongs  to  the  factory  or  manufacturing  end  of  a  business,  there 
will  be  produced  a  figure  representing  manufacturing  cost. 
By  this  figure  the  general  superintendent  or  works  manager 
may  be  judged.  In  like  manner,  if  all  selhng  expenses  are 
collected  separately,  there  will  be  provided  a  basis  for  judging 
the  efficiency  of  the  sales  manager. 

Systems  of  spreading  expense.  —  The  items  of  cost  for 
direct  material  and  direct  labor  are  somewhat  difficult  to  col- 
lect, because  accuracy-  of  reporting  is  required  of  a  large  num- 
ber of  persons :  but  once  collected  they  may  be  distributed  with 
ease  upon  the  proper  jobs.  The  items  of  expense,  on  the  other 
hand,  are  easy  to  coUect,  but  their  distribution  involves  ques- 
tions of  theor}^  so  comphcated  that,  for  the  most  part,  they 
must  be  solved  b}^  arbitrary'  methods.  If  a  business  is  of  a 
very  uniform  nature,  like  a  water-works,  or  a  gas-works,  or  a 
blast  furnace,  or  a  brick  yard,  or  a  mill  for  the  manufacture  of 
flour  or  cement  or  paper,  the  various  items  of  cost  will  tend  to 
rise  and  fall  together.  Under  such  conditions  it  will  not  matter 
greath^  what  method  of  spreading  is  used,  for  any  method  will 
be,  in  reahty,  but  a  division  of  costs  rather  than  a  distribution 
of  them.  But  when  the  different  items  of  cost  follow  different 
laws  of  variation,  the  manner  in  wliich  they  are  grouped  and 
prorated  with  reference  to  each  other  becomes  important. 

Mr.  Going  tells  us,  ''One  underh-ing  idea  appears  in  all  meth- 
ods of  expense  distribution  or  apportionment  that  are  commonly 


COST  ACCOUNTING  175 

employed.  It  is  this:  expense  does  not  naturally  connect 
itself  with  individual  jobs  or  individual  units  of  product.  It 
gathers  like  one  general  cloud  over  the  whole  business,  but  not 
in  distinct  wreaths  around  each  transaction.  Material  and 
direct  labor,  however,  do,  from  the  beginning,  identify  them- 
selves with  individual  operations  or  individual  units  of  product. 
You  can  almost  see  each  job,  as  it  goes  through,  attach  to  itself 
successive  items  of  material  and  of  work.  You  can  see  each 
man  and  each  machine  putting  material  and  work  together,  in 
visible  and  measurable  quantities,  until  each  piece  of  product 
is  completed.  Now,  the  underlying  idea  of  all  methods  of 
expense  distribution  or  apportionment  is  to  use  some  one  or 
more  of  these  visible,  tangible,  and  measurable  elements  as  a 
gauge,  and  to  prorate  the  expense  allotment  by  it.  That  is, 
they  burden  each  job  or  each  unit  of  product  in  proportion  to 
the  material  that  goes  into  it,  or  the  wages  paid  for  it,  or  the 
time  spent  working  on  it,  or  the  use  it  makes  of  the  machines 
and  other  facilities  in  the  factory.  This  gives  us  five  cardinal 
methods  of  expense  distribution:  by  material,  by  percentage 
on  wages,  by  man  hours,  by  machine  rates,  and  by  production 
factors."  ^ 

Percentage  on  materials.  —  An  infrequently  used  method 
of  distributing  expense,  and  one  which  has  little  to  recommend 
it,  except  its  simplicity,  is  to  divide  expense  as  a  percentage 
added  to  the  cost  of  direct  materials.  Inasmuch  as  the  cost  of 
materials  changes  frequently,  this  method  gives  fluctuating 
ratios  and  unstable  total  costs.  Expense  is  likely  to  increase 
less  rapidly  than  output;  it  is  likely  to  vary  inversely  with  the 
quaUty  of  materials  used;  but  it  remains  almost  entirely  unin- 
fluenced by  changes  in  the  price  of  materials. 

Percentage  on  labor  time.  —  If  direct  labor  time  is  classified 
according  to  the  jobs  upon  which  it  is  expended,  it  will  be 
possible  to  distribute  expense  as  a  rate  per  man  hour.     Such  a 

^  Chas.  B.  Going,  Principles  of  Industrial  Engineering,  N.  Y.,  1911, 
p.  97. 


176      ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

system  of  spreading  exerts  a  pressure  upon  the  management  to 
save  the  time  of  the  force.  In  this  respect  pohc}^  follows  fact, 
in  so  far  as  expense  is  a  function  of  time ;  but  overemphasis  of 
time  endangers  quality  of  output,  increases  wear  and  tear  on 
equipment,  and  endangers  the  health  of  emplo^^ees.  Further- 
more, such  a  system  of  spreading  leaves  out  of  account  the 
difference  in  the  cost  of  equipment  provided  for  different  work- 
men. If  an  operatiA^e  at  a  bench,  working  with  a  kit  of  tools 
worth  $25.00,  spent  an  hour  on  a  job  he  would  draw  down  as 
large  a  proportion  of  expense  upon  his  job  as  would  a  ma- 
chinist who  used  a  $2,500.00  planer  for  the  same  length  of  time. 
To  ignore  the  cost  of  special  equipment  in  assessing  individual 
jobs  may,  perhaps,  incline  foremen  who  are  competing  for  low 
cost  records  to  outrun  each  other  in  recommending  the  pur- 
chase of  new  machiner}^  to  save  labor  time,  but  it  fails  to 
bring  out  the  expense  of  allowing  equipment  to  stand  idle  or  be 
operated  at  a  speed  below  its  capacity. 

Percentage  on  labor  cost.  —  To  tabulate  expense  as  a  per- 
centage on  direct  wages  is  a  simple  plan,  and  one  ver}-  generally 
used.  As  it  emphasizes  wages  it  appears  to  recommend  the 
pohc}^  of  emplo^dng  cheap  men;  a  pohc}'-  wliich  becomes  falla- 
cious when  incompetent  men  are  selected,  since  such  men 
increase  factor}^  expense  rather  than  diminish  it.  This  system, 
like  the  preceding  one,  fails  to  distinguish  between  jobs  which 
use  expensive  machinery  and  those  wliich  employ  little  equip- 
ment. 

Percentage  on  prime  cost.  —  The  use  of  tliis  plan  depends 
upon  no  principle  of  superiority  in  theorj^,  but  entirely  upon 
the  practical  circumstance  that  prime  cost  is  a  perfecth^  clear 
concept,  and  that  the  figure  representing  it  is  usualh^  at  hand. 
A  mere  favorable  ratio  of  burden  to  prime  cost  is  of  no  sig- 
nificance, for  burden  may  be  kept  relativel}''  low  by  swelling 
prime  cost  items. 

Machine  rates.  —  A  machine  rate  is  composed  of  items  with- 
drawn from  expense,   and  representing  the  more  important 


COST  ACCOUXTIXG  177 

parts  of  the  cost  of  operating  a  given  machine  or  other  large 
unit  of  productive  equipment.  It  is  spread  as  an  hourly  charge 
upon  all  work  using  such  equipment.  A  machine  rate  may  be 
used  when  any  of  the  previously  mentioned  S3^stems  are  used  to 
distribute  the  remaining  items  of  expense;  its  effect  will  be  to 
amend  their  neglect  of  equipment.  As  ordinarily  composed, 
a  machine  rate  includes  charges  for  interest,  depreciation, 
and  repairs,  and  for  power  consmned.  The  machines  are  not 
rated  separatel}",  but  are  grouped  into  classes,  each  class  having 
an  expense  rate. 

As  these  hourly  rates  are  based  upon  the  assumption  of  con- 
tinuous use,  if  a  macliine  hes  idle,  an  idle-time  charge  accumu- 
lates, which  must  either  be  spread  as  a  supplementary  machine 
rate  upon  the  jobs  using  the  machine,  or  be  thi'own  into  general 
expense  and  spread  over  all  jobs.  When  machines  are  operated 
overtune  there  is  created  a  supplementary  rate  which  must  be 
deducted  from  the  full-time  rate. 

It  is  probable  that  a  very  large  percentage  of  manufacturing 
establishments  are  overequipped  in  some  particular.  It  is, 
therefore,  a  corrective  pohcy  to  make  the  costhness  of  idle 
equipment  stand  out  as  distmcth^  as  possible,  by  making  a 
separate  calculation  of  the  loss,  in  the  form  of  an  idle-time 
charge. 

The  penalized  job.  —  After  the  various  classes  of  machines 
in  an  estabhshment  have  been  given  an  hourly  rating,  if  a  job 
is  transferred  from  the  proper  machines,  because  they  are  aU 
occupied,  to  an  idle  machuie  of  higher  rating,  it  does  not  seem 
fair  to  penahze  the  job  bj^  the  amount  of  the  difference  in  the 
rating.  Xo  greater  offense  has  been  committed  than  to  use 
equipment  which  would  otherwise  have  been  idle.  The  proper 
reUef  is  either  to  cany  the  extra  charge  to  the  jobs  normal  for 
the  machine  used,  or  else  to  throw  the  item  into  general  expense. 

Production  centers.  —  As  cost  accounting  anah'sis  has  pro- 
gressed, a  tendency  has  shown  itself  to  enlarge  and  perfect  the 
machine  rate,  b}^  including  more  and  more  items  of  expense 


178      ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

in  it,  and  by  dividing  the  machines  of  an  estabhshment  into  a 
larger  number  of  classes  so  that  each  machine  may  carry  an 
hom^ly  rate  which  is  approximately  correct.  The  culmination 
of  this  tendency  is  the  proposal  to  divide  the  entire  working 
space  of  an  establishment,  including  the  locations  of  machines 
and  work  benches  and  erecting  floors,  into  a  series  of  produc- 
tion centres.  For  each  of  these  centres  an  hourly  rate  or  rental 
is  to  be  calculated  which  shall  include  every  item  of  expense 
property  chargeable  to  manufacturing. 

The  conception  has  thus  been  elucidated  by  Mr.  R.  R.  Keely. 
''In  a  machine  shop  each  workplace  may  be  regarded  as  enclosed 
by  four  imaginary  walls,  forming  a  room  of  suitable  size  for 
the  performance  of  its  operation.  Each  workplace  is  then  con- 
sidered as  a  unit  in  itself  from  which  profit  may  be  made  in 
turning  out  a  product.  It  may  be  conceived  as  rented  to  an 
individual  workman. 

"If  all  the  workplaces  are  rented,  then  the  source  of  income 
is  not  on  product  sold,  but  altogether  from  rental  of  the  avail- 
able useful  space  of  the  manufacturing  plant.  All  space,  how- 
ever, cannot  be  turned  into  rentable  workplaces,  for  there  must 
be  general  heat,  light,  and  power  plant,  storage  space,  aisles, 
halls,  passages,  offices,  etc.  .  .  .  Each  workplace  unit  must 
bear  its  share  of  interest  and  depreciation  on  its  building,  inter- 
est and  depreciation  on  the  cost  of  machine,  taxes,  insurance, 
etc.,  on  the  investment,  repairs,  and  maintenance  of  building 
and  equipment,  its  share  of  heat,  hght,  power,  etc.,  as  well  as 
all  other  general  charges.  The  cost  of  the  product  from  each 
workplace  is  made  up  of  rental,  raw  material  entering  into  the 
product,  and  a  fair  compensation  for  the  worker.  .  .  .  Pro- 
vision must  be  made  for  the  idle  time  of  a  workplace."  ^ 

Into  this  production-centre  rate  will  be  inserted  rentals 
for  all  service  workmen  and  service  departments,  and  for 
general  management,  just  as  in  a  modern  high-class  apartment 

1  R.  R.  Keely,  Overhead  Expense  Distribution,  Am.  Soc.  Mech.  Eng., 
Feb.  8,  1913. 


COST  ACCOUNTING  179 

bouse  the  rental  is  made  to  include  charges  for  elevator  service 
and  janitor  service.  This  sj^stem  of  handhng  expense  may  be 
complex,  but  its  leading  champion,  Mr.  A.  H.  Church,  boldly 
says,  "No  facts  that  are  in  themselves  complex  can  be  repre- 
sented in  fewer  elements  than  they  naturally  possess."  ^  The 
discussion  of  this  system  is  doing  much  to  advance  cost  analysis. 

Conclusion  on  spreading  systems.  —  No  spreading  system 
can  attain  theoretical  accuracy.  The  degree  of  accuracy  insisted 
upon  must  be  conditioned  b}^  the  demand  for  other  virtues  such 
as  speed,  economy,  and  simplicity.  As  Mr.  D.  S.  Kimball 
says,  "The  method  adopted  should  be  as  simple  as  the  problem 
will  permit.  Thus,  it  would  be  folly  to  install  an  elaborate  ma- 
chine-rate method  in  a  continuous  process  plant  manufacturing 
a  single  commodity,  where  a  percentage-on-material  method 
is  amply  accurate.  Again,  in  cases  where  a  few  Hues  of  goods 
are  made  on  small  machines  of  low  value,  the  percentage-on- 
wages  or  the  hourly  burden  method  may  be  fully  adequate. 
Where  the  hues  of  production  vary  widel}^  in  size  and  character 
these  suTiple  sj^stems  are  not  sufficient^  accurate,  and  a  careful 
manager  will  go  as  far  as  he  can  in  the  direction  of  a  machine 
rate."  - 

A  tabulated  summary  of  cost  items  is  here  introduced  to 
indicate  the  general  relation  of  spreading  systems  to  each  other. 

Administration  of  Cost  Accounting 

The  preceding  brief  review  of  cost  items  and  of  the  methods 
of  distributing  them  serves  to  show  that  cost  accounting  is  an 
important  instrument  of  analysis,  of  which  no  business  adminis- 
trator can  afford  to  be  ignorant.  Mr.  Church  has  defined  cost 
accounting  as  a  means  of  showing  "The  connection  of  expendi- 
tures of  all  classes  with  the  items  of  output  to  which  they  are 

1  A.  H.  Church,  Production  Factors  in  Cost  Accounting  and  Works 
Management,  N.  Y.,  1910,  p.  172. 

-  D.  S.  Kimball,  Principles  of  Industrial  Organization,  N.  Y.,  1913, 
p.  138. 


180      ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 


Prime 
Cost 


Department 
Expense 


Facton.' 
Expense 


Expense 


Selling 
Expense 


Cost  items 

Direct  materials 

Direct  labor 

Foremanizing  and  other 
department  indirect 
labor 

Shop  space 

Machinery- 

Supphes 

Power 

Buying    and    Stores 

Depts 

Receiving  and 

Tool  room 

Engineering  (repairs) 

Drafting  room 

Planning  room 

Gienl  Supt.  office 


Method  of  Disriiburion 
Direct 


.\sa 

machine- 
hour 
rate 


?hippui< 


A?  a  -  r  on 
materials,  or 
■  labor     time, 
or  labor  cost, 
or  prime  cost 


Employment  office. 

Accounting 


Legal 

WeKare  Dept. 

Gen'l  r^^  -^. 


Directors 


As  a  %  on 
mfg.  cost 
or  divided 

between 
mfg.  cost 
and  sell- 
ing cost. 


■       © 

§  I 

o  f^ 


Advertising ] 

Credit  and  collection        I  Asa 


%on 


1  Agency  expenses •  manufactured 
Salesmen cost. 
Sales  Mgr.'s  Office... 


incident.'''  -  Proprietorship  accounting  ultimately  sums  up 
all  items  of  exp€nditiu*e  into  its  totals,  but  it  does  not  measure 
the  items  near  enough  to  their  sources  to  reveal  the  relation 
between  expenditure  and  production  in  detail.  Cost  account- 
ing, on  the  contran*.  is  a  scheme  of  measuring  expenditures  as 
close  as  possible  to  the  time  and  place  of  the  productive  acts 


1  A.  H.  Church,  Distribution  of  Expense  Burden,  X.  Y..  1913,  p.  13. 


COST  ACCOUNTING  181 

which  give  rise  to  the  cost.  The  object  of  securing  this  record 
at  the  point  of  origin  of  the  outlay  is  twofold,  first,  to  get  a 
record  sufficiently  dissected  and  analytical  in  its  nature  to  reveal 
the  relation  between  expense  and  output  in  detail,  and  so  reveal 
the  cost  of  a  unit  of  product;  second,  to  so  measure  the  outlay 
on  account  of  men,  machines,  materials,  processes,  gangs, 
departments,  agencies,  plants,  etc.,  that  when  this  record  of 
costs  is  brought  into  comparison  with  a  record  of  like  detail 
and  corresponding  classification,  showing  useful  work  done,  the 
efficiency  of  each  agency  of  production  can  be  measured.  Cost 
accounting  is,  therefore,  an  instrument  of  precision  in  the 
hands  of  the  administrator:  it  is  one  of  the  many  special  forms 
of  scientific  analysis  available  as  a  means  of  control. 

When  accounts  are  essential.  —  A  good  system  of  cost 
accounts  is  especially  to  be  desired  whenever  costs  are  fluctuat- 
ing, when  high-priced  labor  or  expensive  materials  are  used, 
or  when  the  margin  of  profit  in  an  enterprise  is  narrow,  so  that 
selling  prices  must  be  set  with  care.  Accurate  costs  are  useful 
as  a  sort  of  stethoscope  for  revealing  the  internal  conditions  of 
a  business  where  much  delegation  of  authority  exists,  or  where 
proprietorship  rests  in  the  hands  of  persons  not  technically 
expert,  and  so  unable  to  gauge  efficiency  by  the  process  of 
intuition.  The  early  warning  which  cost  records  give  of  chang- 
ing conditions  is  invaluable  as  a  safeguard  in  disturbed  and 
critical  times,  or  when  extraordinary  expenses  are  being  in- 
curred, or  when  large  contracts  must  be  entered  into  on  the 
basis  of  preliminary  estimates.  An  establishment  which  makes 
a  considerable  variety  of  products  can  discover  the  fines  which 
are  most  profitable,  and  so  determine  the  true  field  of  its  en- 
terprise and  its  proper  function  in  the  business  world,  only 
by  a  cost  system. 

Limits  of  Elaboration.  —  It  has  become  somewhat  habitual 
to  think  of  red  tape  in  connection  with  accounting.  This  is 
probably  due  to  the  carrying  of  the  balanced-to-a-cent  rigidity 
of  bank  accounting  (fiduciary  accounting)  into  industrial  insti- 


182      ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

tutions:  and  the  extension  of  a  centralized  requisition  and 
voucher  system  to  the  petty  acts  of  high  officials  not  at  head- 
quarters, so  that  the  salary-  equivalent  of  the  time  taken  to 
comply  exceeds  the  amoimt  of  the  items  involved.  As  a  cost 
system  is  simply  one  administrative  agency  among  others, 
its  development,  and  the  expenditm'e  proper  to  inciu*  on  account 
of  it.  must  be  controlled  by  the  general  law  of  coordination  or 
of  equal  utihty  of  marginal  outlay.^  This  means  that  it  should 
end  at  the  point  where  any  further  expenditure  upon  it  wiR 
yield  a  less  retm-n  than  could  be  secured  if  that  exp>enditure 
were  made  to  improve  some  other  feature  of  the  enterprise. 
Beyond  this  point  hes  the  domain  of  red  tape. 

The  order  system.  —  To  asceitain  costs  it  is  necessaiy  to 
bring  under  control  all  the  acti\'ities  in  connection  with  which 
they  are  incmred.  to  the  end  that  there  shall  always  be  a  record 
where  there  is  an  expenditm'e.  Such  control  is  obtained  by 
estabhshing  the  rule  that  no  expense  is  to  be  inciu'red  without 
an  order;  and  that  orders  go  into  effect  thi'ough  a  prescribed 
method  of  authorization,  and  ai'e  concluded  by  a  prescril>ed 
form  of  report.  For  such  operatives  as  are  subject  to  strict 
and  detailed  guidance  in  their  work  an  order  wiU  appear  to 
have  the  character,  chiefly,  of  a  written  instruction  to  do  cer- 
tain things.  But  for  those  officers  who  receive  infrequent, 
infoiTual.  or  general  instructions,  and  in  whom  is  reposed  much 
discretionaiy  power,  the  order  system  will  appear,  chiefly,  as 
a  particular  manner  of  requisitioning  supphes,  or  of  repoiting 
acts  perfonned.  In  the  shops  an  order  sj'stem  will  mean  that 
no  materials  can  be  secured  except  on  a  reciuisition  bearing  an 
order  nimiber,  and  that  no  workman's  labor  can  be  put  on 
an^-thing  not  specifically  authorized,  and  accompanied  by  a  job 
ticket  bearing  an  order  nimiber.  In  the  shops,  each  new  lot 
of  goods  to  be  manufactured  wiU  requu*e  a  new  order,  for  there 
each  order  wiU  expire  as  soon  as  work  on  the  particular  lot  of 
materials  or  articles  covered  bj^  it  is  finished.     In  the  ser\ace 

1  See  Chapter  VU,  p.  144. 


COST  ACCOUNTING  183 

departments  and  in  the  executive  offices,  where  outlay  cannot 
be  directly  coupled  with  any  individual  unit  or  lot  of  goods, 
the  order  will  be,  in  reahty,  the  title  of  a  certain  permanent 
class  or  subdivision  of  expense,  under  which  each  particular 
outlay  is  to  be  reported.  Such  orders  will  be  permanent,  so 
that  w^e  may  speak  of  a  system  of  standing  orders  as  prescribing 
a  certain  classification  of  items  in  all  requisitioning  and  report- 
ing. Some  of  the  leading  entries  among  standing  orders  will 
be  additions  to  buildings,  repairs  to  buildings,  new  equipment, 
repairs  to  equipment,  department  payroll,  stationery,  royalties, 
legal  expenses,  advertising,  and  insurance.  The  classifica- 
tion of  these  orders  is  important,  since  it  conditions  the  analysis 
of  expenditures. 

Cost  accounting  versus   proprietorship   accounting.  —  Cost 
accounting  is  a  thing  quite  different  from  proprietorship  ac- 
counting.    The  latter  aims  to  show,  by  means  of  the  balance 
sheet,  what  property  there  is  at  a  given  time,  and  what  the 
claims  of  ownership  are  to  it.     By  means  of  its  trading,  profit 
and  loss,   and  revenue   statements,  it   shows,  in  summarized 
form,   what  the  receipts   and   expenditures  have  been  for  a 
period   of  time,  what  the  profit  or  loss  has  been,   and  what 
disposition  has  been  made  of  the  profit.     Proprietorship  ac- 
counting keeps  the  records  of  financial  relations  with  outside 
parties,  as  the  law  requires;   it  maintains  a  check  on  fraud, 
internal  and  external;   it  constitutes  one  proof,  among  others, 
as  to  where  ownership  Kes;  it  shows  whether  or  not  the  capi- 
tal fund  is  properly  proportioned  between  the  various  forms 
of   fixed  and    current   assets;    and  estabUshes   the    condition 
of  a  business  with  reference  to  insolvency  and  bankruptcy. 
Cost  accounting,  on  the  other  hand,  aims  to  collect  all  the 
items  of  outlay,  great  or  small,  incident  to  the  production  of  a 
unit  of  goods  or  services.     It  uncovers  the  causes  of  fluctua- 
tions of  expenditures,  and  indicates  the  true  field  of  profit.     It 
aims  to  measure  the  efficiency  of  all  the  agencies  of  production, 
in  so  far  as  this  can  be  done  b}^  the  use  of  a  scale  of  monetary 


184      ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

value.  Proprietorship  accounting  admits  only  veritable  original 
items :  it  balances  its  data  in  the  form  of  debit  and  credit :  and 
when  in  perfected  form  insists  on  the  j&ne  equilibriimi  of  being 
balanced  to  a  cent.  Cost  accoimting  freely  uses  estimates 
and  averages,  distributing  sometimes  more  and  sometimes  less 
than  it  collects.  One  of  these  systems  has  had  a  long  history; 
the  other  is  of  recent  origin.  One  is  the  special  instrument 
of  the  financier;  the  other  is  the  daily  working  tool  of  the 
production  engineer  and  works  manager. 

In  spite  of  these  distinctions  of  aim  and  method,  cost  account- 
ing and  proprietorship  accoimting  should  be  interlaced  into  one 
harmonious  SA'stem  of  financial  records.  The  connection  will 
be  made  through  the  introduction  of  the  totals  of  the  control 
accoimts  of  the  cost  system  as  items  in  the  trial  balance  and  in 
the  profit  and  loss  accoimt.  Thus  tied  together,  the  cost  sa's- 
tem  ser\'es  as  an  intensified  study  of  certain  items  in  the  pro- 
prietorship accoimts,  while  the  proprietorship  accounts  ser\'e 
as  comprehensive  sur\'eys  which  make  certain  that  all  proper 
items  have  been  introduced  into  costs.^ 

Uniform  cost  systems.  —  The  estabhshment  of  a  uniform 
sj'^tem  of  cost  accounting  for  the  indi^-idual  estabhshments  in 
a  branch  of  industry'  exerts  a  great  influence  toward  stable  condi- 
tions and  friendly  relations.  Without  such  imiformity  in  the 
cost-calculating  process,  competition  is  not  able,  in  the  more 
complex  industries,  to  estabUsh  agreement  as  to  what  fair  cost 
is.  Without  it.  therefore,  a  market  can  never  reach  anything 
better  than  an  approximate  and  imstable  equihbrium  as  to 
prices.  The  chief  reason  why  unanimity  of  opinion  as  to  costs 
cannot  be  reached,  when  different  systems  of  accoimting  are 
used,  is  that  there  are  many  different  ways  of  grouping  and 

1  For  the  argument  that  cost  accounts  and  proprietorship  accounts 
should  be  kept  separate,  see  H.  P.  Gillette  and  R.  T.  Dana,  Cost  Keeping 
and  Management  Engineering.  X.  Y.,  1909,  pp.  65-70.  For  the  opposite 
view,  see  A.  H.  Church,  Production  Factors  in  Cost  Accounting  and  Works 
Management,  N.  Y.,  1910,  Ch.  \TI,  pp.  163-1S7. 


COST  ACCOUNTING  185 

spreading  overhead  charges  or  factory  burden.  Even  a  com- 
paratively simple  item  like  the  cost  of  raw  materials  may,  in 
ordinary  practice,  include  any  grouping  of  a  dozen  or  more 
different  cost  elements.  The  line  between  direct  and  indirect 
labor  is  not  drawn  alike  in  two  plants.  In  calculating  the  de- 
preciation of  buildings  and  equipment,  some  concerns  use  the 
straight-line  method,  or  calculate  a  fixed  percentage  from  the 
original  value  annually;  others  deduct  a  fixed  percentage  from 
an  annually  diminishing  value ;  and  still  others  make  no  regular 
allowance  but  either  set  aside  lump  sums  out  of  profits  from 
time  to  time,  or  trust  to  offsetting  against  depreciation  the 
appreciation  of  such  assets  as  real  estate  or  good-will.  With 
such  diversity  of  practice  it  is  apparent  that  competitors  can- 
not act  upon  the  same  concept  as  to  cost,  and  cannot,  therefore, 
establish  their  prices  in  any  definite  and  fair  relation  to  cost. 
Profits  are,  therefore,  arbitrary  and  uncertain,  and  not  stand- 
ardized as  ''converting  profits." 

It  is  well  known  that  injurious  competition  often  has  its 
origin  in  the  suspicious  state  of  mind  which  is  generated  among 
rivals  who  do  not  know  where  the  bottom  rock  of  cost  is. 
Rumors  of  cuts  are  given  credence  because  the  knowledge  is 
not  at  hand  to  indicate  their  improbability;  and  such  rumors 
are  responded  to  more  promptly  because  the  folly  of  the  action 
is  not  at  once  apparent. 

The  introduction  of  a  uniform  system  of  cost  accounts  by  a 
number  of  concerns  in  the  same  fine  of  industry,  as  the  result, 
perhaps,  of  the  activity  of  a  trade  association,  invariably  brings 
these  estabhshments  into  a  state  of  intelligent  reaction  upon 
each  other.  Competition  is  not  extinguished,  though  that 
abnormal  form  of  it  which  consists  in  setting  prices  below  cost 
may  be  discouraged.  The  interests  of  the  public  are  better 
served  in  the  long  run,  because  the  leadership  toward  lower 
prices  comes  from  well  managed  concerns  of  enduring  power  as 
factors  in  the  market  rather  than  from  experimenters  and  price 
gamblers  who  exert  but  a  temporary  influence.     Where  costs 


186      ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

are  intelligently  dealt  with  by  a  group  of  producers,  the  price 
pressure  of  the  leaders  bears  down  discriminately  at  those  points 
where  unproved  efficiency  is  possible  for  others. 

T\Tien  once  all  the  items  of  a  normal  and  proper  cost  are 
eniunerated  and  brought  into  clear  tow.  the  idea  of  maintain- 
ing fair  prices  becomes  a  sign  of  intelligent  management,  and 
even  a  point  of  honor.  By  this  means  financing  is  made 
easier  and  capital  flows  in  to  work  a  greater  ultimate  reduction 
in  price,  through  the  effect  of  good  equipment  and  production 
on  a  large  scale,  than  disorderly  market  wars  could  ever  effect, 
^lanagements  are  released  from  the  excitement  of  commercial 
and  financial  experimentation,  and  set  to  work  upon  those 
matters  which  constitute  the  proper  domain  of  manufacturing 
acti\'ity.  WTien  the  Biu*eau  of  Business  Resenreh  o:  Harvard 
University  began  an  investigation  of  the  retailing  of  -r.  -,  it 
was  obhged,  as  the  first  step,  to  formulate  a  system  of  accoimts 
and  introduce  it  into  the  cooperating  estabhshments.  Until 
that  was  done  the  reports  of  different  establishments,  show- 
ing different  costs,  prices,  and  profits,  reflected  differences  of 
accountiug  method  quite  as  much  as  they  did  differences  of 
local  conditions  and  business  poHcies. 

As  the  contact  of  business  men  in  the  same  line  becomes 
more  educative,  by  reason  of  agreement  as  to  the  real  nature 
of  the  contest  being  waged  with  cost,  trade  associations  are 
strengthened.  The  discussions  of  business  gatheriugs  become 
less  rambhng  and  popular,  and  more  vital  and  searching.  The 
impulse  which  a  group  of  busiuess  men  in  a  .^^imilar  Une  gathered 
together  natm-aUy  feel  to  adopt  a  temporarA'  panacea,  and 
control  the  market  by  some  artificial  means,  is  replaced  by  a 
desire  to  use  their  assemblage  as  an  occasion  for  studying  effi- 
ciency. The  result  of  these  influences  is  to  work  out  a  more 
rational  di^osion  of  territory'  between  individual  estabUshments 
in  the  same  trade,  and  a  better  di\'i3ion  of  functions  between 
allied  trades.  Unprofitable  lines  are  more  quickly  dropped, 
unprofitable    departments   are   more    readly   eliminated,    and 


COST  ACCOUNTING  187 

unprofitable  establishments  are  more  promptly  closed.  This 
purging  action  releases  much  unnecessary  capital  investment, 
and  cuts  off  much  unnecessary  operating  expense. 

BIBLIOGRAPHY 

Cole,  W.  M.:    Accounts,  Their  Construction  and  Interpretation,  Boston, 

1908. 
Wildman,  J.  R.:  Cost  Accounting,  N.  Y.,  1911. 
Webner,  F.  E,:  Factory  Costs,  N.  Y.,  1911. 

Bunnell,  S.  H.:    Cost  Keeping  for  Manufacturing  Plants,  N.  Y,,  1911. 
Bunnell,  S.  H.:    Expense  Burden:    Its  Incidence  and  Distribution,  Proc. 

Am.  Soc.  of  Mech.  Eng.,  1912,  Vol.  33,  No.  1326,  pp.  535-559. 
Church,  A.  H.:  Production  Factors  in  Cost  Accounting  and  Works  Man- 
agement, N.  Y.,  1910.  . 
Church,  A.  H.:  The  Proper  Distribution  of  Expense  Burden,  N.  Y.,  1913. 
Going,  Chas.  B,:   Principles  of  Industrial  Engineering,  N.  Y.,  1911.     Ch. 

V,  The  Nature  of  Expense;   Ch.  VI,  Distribution  of  Expense. 
Kimball,  D,  S.:    Principles  of  Industrial  Organization,  N.  Y.,  1913.     Ch. 

IX,  Principles  of  Cost  Keeping;  Ch.  X,  The  Depreciation  of  Wasting 

Assets. 
Towne,  H.  R.:   Axioms  Concerning  Manufacturing  Costs,  Journ.  of  Am. 

Soc.  of  Mech.  Eng.,  Dec.  1912,  Vol.  34,  No.  1377,  pp.  1945-1957. 
Frankhn,  Benj.  A.:   Cost  Reports  for  Executives,  N.  Y.,  1913. 
Gantt,  H.  L. :   Industrial  Leadership,  New  Haven,  Conn.,  1916,  especially 

pp.  65-70. 


CHAPTER  X 

THE  EMPLOYMENT  OF  LABOR 

Introductory.  —  The  labor  problem  is  a  manifold  thing,  com- 
posed of  man}^  parts.  If  we  arrange  a  few  of  these  parts 
somewhat  in  the  order  in  wliich  they  will  present  themselves 
in  the  term  of  an  individual  labor  contract,  the  hst  will  appear 
as  follows: 

(a)  emplo3^ment :   a  bargaining  process  and  a  legal  contract, 
(6)  shop  training:   a  form  of  delayed  vocational  training, 

(c)  disciphne,  through  shop  rules, 

(d)  the  working  enwonment,  embracing  such  matters  as  hght- 

ing,  heating,  ventilation,  and  the  convenience  of  machine 
design, 

(e)  measurement  of  work  done, 

(/)  reward  in  wages,  and  promotion  or  discharge, 
(g)  welfare  work,  that  ''something  more  than  wages"  which 
gives  evidence  of  the  emploj^er  as  a  social  being  in  contra- 
distinction to  an  ''economic  man." 
The  cost  of  a  shifting  force.  —  In  the  course  of  an  inquirj^ 
made  into  the  irregularity  of  employment,  the  Russell  Sage 
Foundation   discovered   that   a  certain   mining  company   em- 
ploying on  an  average  1,000  men,  was  obhged  to  liire  5,000 
new  men  each  j^ear,  to  maintain  its  force.     A  large  macliine 
shop,  with  a  force  of  10,000  persons,  was  found  to  have  taken 
on  21,000  new  employees  in  a  year.     Another  large  concern 
was  recruiting  at  the  rate  of  two  men  per  year  for  every  man 
on  the  average  force.     The   Consumers'   League   of  Eastern 
Pennsylvania  found   that  the  three  telephone  companies  of 

188 


THE  EMPLOYMENT  OF  LABOR  189 

Philadelphia,  averaging  3,000  women  employees,  had  30  per 
cent  of  resignations  and  dismissals  per  year.  The  average 
service  of  girls  employed  by  the  Michigan  Telephone  Company 
has  been  found  to  be  20  months,  showing  a  60  per  cent  rate  of 
annual  change.  Making  some  allowance  for  the  special  diffi- 
culties of  telephone  companies,  these  records  and  others  of 
similar  purport  are  characteristic  of  what  is  called  the  hiring 
and  firing  process,  a  recruiting  method  which  consists  of 
promiscuous  hiring,  costly  sifting,  inadequate  adjustment, 
and  early  discharge. 

Every  new  employee  introduced  into  an  estabhshment,  and 
adjusted  to  a  particular  place,  entails  an  expense  over  and  above 
what  the  continued  service  of  a  former  employee  would  have 
cost.     This  expense  has  been  estimated  many  times;    and  it 
appears  to  be  the  prevaihng  opinion  that  it  is  in  the  neighbor- 
hood of  $100  per  employee.     Where  a  force  shifts  at  the  rate 
of  a  complete  turn-over  each  six  months,  the  cost  of  recruiting 
may  amount  to  20  per  cent  of   the    payroll  expense.     This 
cost  is  made  up  of  the  expense  of  the  employment  department, 
the  extra  attention  required  of  foremen,  the  low  rate  of  initial 
performance,  the  cost  of  spoiled  work,  the  high  accident  rate, 
and  the  extra  wear  and  tear  of  equipment.     No  allowance  is 
made  in  these  calculations  for  the  lack  of  team  work  in  gangs 
and  departments  where  new  and  old  employees  are  placed  side 
by  side;  nor  is  any  made  for  the  low  average  performance  which 
is  Hkely  to  characterize  a  group  of  workers  as  long  as  novices 
or  obvious  misfits  among  them  are  permitted  to  establish  a 
poor  performance  as  the  permissible  minimum.     No  allowance 
is  made  for  the  uneasiness  and  lack  of  loyalty  of  a  constantly 
shifting  force. 

The  employment  officer.  —  In  small  estabhshments  workmen 
are  recommended,  if  not  actually  hired,  by  the  department 
foremen.  In  concerns  of  size  it  is  profitable  to  entrust  the 
employment  of  all  persons  below  a  certain  rank  to  one  officer. 
By  this  plan  complete  records  can  be  estabhshed  in  one  place, 


190      ADMIXISTRATIOX  OF  IXDUSTRIAL  ENTERPRISES 

and  experience  can  be  made  cumulative  in  developing  some 
degree  of  skill  in  the  chosen  officer.  The  emplo\Tnent  officers 
of  a  locality,  if  organized  into  an  Emplo\Tnent  Managers' 
Association,  can  come  together  for  the  study  of  the  methods 
essential  in  their  work,  and  can  exert  an  influence  in  favor  of 
vocational  training  and  vocational  guidance. 

Promotion.^  —  A  position  may  be  filled  either  by  the  pro- 
motion of  an  employee  from  an  inferior  place,  or  by  shifting 
an  employee  from  a  place  of  equal  rank,  or  by  the  introduction 
of  an  outsider.  To  firmly  estabhsh  the  poUcy  of  promotion 
means  to  open  a  future  inside  the  business  for  each  person, 
and  to  make  ambition  a  centripetal  instead  of  a  centrifugal 
force.  To  do  this,  functions  must  be  grouped  in  such  a  way 
that  the  positions  created  vriR  stand,  with  reference  to  each 
other,  in  a  graduated  scale,  across  the  intervals  of  which  it 
will  be  possible  for  indi\4duals  to  move  at  the  rate  of  normal 
development,  until  the  limit  of  their  talents  is  reached.  WTien 
persons  are  thus  linked  together,  each  superior  becomes  a 
pattern  and  each  subordinate  an  understudy.  The  superior 
is  released  from  detail,  and  gains  a  counselor  whose  judgment 
has  the  freedom  due  to  exemption  from  direct  responsibUity. 
As  the  understudy  grows  toward  the  superior  in  knowledge 
and  power,  the  latter  perceives  that  he  is  no  longer  indispens- 
able, and  strives  to  rise  into  a  higher  world  of  efficiency. 

Transfer.  —  If  a  record  is  kept  of  the  kinds  of  experience 
possessed  by  employees,  and  their  natural  aptitudes,  it  wiQ 
often  be  possible  to  improve  the  adjustment  of  a  force  by 
shifting.  Some  of  the  estabhshments  operating  under  scien- 
tific management  use  slack  times  as  schooling  periods.  At 
such  times  many  workmen  are  shifted  temporarily  to  new 
tasks  for  which  they  have  shown  aptitude.  The  object  is  to 
teach  ever>'  man  a  second  or  reserve  emplo^inent,  not  only 
with  the  hope  of  discovering  latent  talents  which  may  lead  to 
permanent  transfers,  but  in  order  that  the  temporary- shifting 

^  See  Chapter  VII,  p.  147. 


THE  EMPLOYMENT  OF  LABOR  191 

required  by  rush  orders  or  unequal  pressure  of  work  on  different 
shops  may  be  more  easih^  made.  In  slack  tunes  a  manage- 
ment can  best  spare  the  time  to  explore  the  hidden  capacity 
of  its  operative  force,  for  at  that  time  the  slowness  of  an  experi- 
mental or  learning  process  can  best  be  endured. 

Sources  of  supply.  —  Out  of  750  employers,  who  reported 
in  1911  to  the  Xew  York  Commission  on  Unemployment, 
there  were  458  firms,  or  60  per  cent,  who  secured  practically 
aU  of  their  help  from  those  making  personal  appUcation  to 
them.  Tw^o  hundred  firms  advertised  in  newspapers,  in  addi- 
tion to  choosing  from  those  who  offered  themselves.  Fifty 
used  emplojTiient  agencies;  10  depended  upon  the  trades 
unions. 

If  a  concern  has  a  good  reputation  as  an  employer,  new 
candidates  may  be  secured  from  among  the  friends  and  rela- 
tives of  the  force,  by  merely  posting  notices  about  the  works. 
PubUc  advertising  has  the  drawback  of  creating  restlessness 
among  emploA^ees,  from  the  fear  of  discharge.  But  if  an  adver- 
tisement of  help  wanted  is  published  without  giving  the  name 
of  the  advertising  emplo3^er,  the  best  class  of  men  will  pay  no 
attention  to  it.  If  an  employer  asks  for  references  with  the 
first  application  of  a  candidate,  those  persons  will  be  eliminated 
who  do  not  wish  to  have  their  present  employers  know  that 
they  are  looking  elsewhere.  Even  unemployed  persons  realize 
that  the  patience  of  previous  emploj^ers  must  not  be  taxed 
too  frequently  by  the  requests  of  prospective  employers  for 
information. 

Employment  agencies.  —  Emplojmient  agencies  are  useful 
chiefly  in  securing  low-grade  labor  in  large  quantity  on  short 
notice,  as  for  railroad  construction  or  other  contract  work. 
There  is  a  strong  tendency  to  discriminate  against  the  agency, 
and  this  feehng  operates  to  restrict  it  to  the  business  of  placing 
floaters"  with  such  firms  as  are  always  having  labor  troubles. 
Public  emplo}Tiient  agencies  are,  in  general,  below  even  the 
very  moderate  standard  of  efficienc}^  attained  by  American 


192      ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

municipal  and  state  governments.  ^Ir.  Wm.  ]M.  Lieserson, 
who  as  a  member  of  the  Wisconsin  Industrial  Bureau  was 
largely  instrumental  in  making  the  Wisconsin  agencies  an  excep- 
tion to  the  above  judgment,  has  said  of  pubhc  agencies  in 
general,  "With  few  exceptions  their  operations  have  been  on 
a  small  scale,  their  methods  unbusinesslike,  and  their  statistics 
valueless  if  not  unreUable."  The  Illinois  agencies  upon  which 
the  state  has  for  14  years  spent  $50,000  annually,  the  late 
Professor  Chas.  R.  Henderson  pronounced  almost  complete 
failures.  Here  is  a  task  for  emplo\Tnent  managers.  In  some 
stateSj  notably  Wisconsin,  a  beginning  has  been  made  of  better 
things.  The  agencies  of  that  state  are  organized  into  a  system, 
through  the  prompt  interchange  of  information. 

In  that  state  an  effort  has  been  made  to  solve  the  problem  of 
the  "  short  job/'  Under  usual  concUtions,  in  cities  of  any  size, 
there  are  too  many  men  attempting  to  Hve  on  short  jobs.  Each 
of  these  persons  gets  a  job  now  and  then;  but  the  class  as  a 
whole  is  miserable,  and  but  intermittently  employed.  The 
Wisconsin  plan  is  to  select  from  the  casual  labor  class  a  gi-oup 
of  men  fitted  for  miscellaneous  unskilled  work,  and  not  more 
numerous  than  can  be  kept  continuously  employed.  The 
men  of  this  group  are  carefully  scheduled  from  one  job  to 
another.  By  turning  others  away  from  this  class  of  work 
entirely,  the  extra  supply  is  gradually  disposed  of  in  permanent 
positions,  or  is  distributed  to  other  localities.  Wlien  such  a 
progi'am  is  being  followed  by  the  pubhc  agencies,  the  employ- 
ei-s  of  floating  labor  should  cooperate  by  dismissing  the  lines  of 
waiting  men  at  their  gates,  and  by  taking  casual  laborers  from 
the  selected  list  only. 

Employment  rules.  —  The  following  rules  may  be  considered 
in  forming  the  poUeies  of  an  emplo^^nent  department: 

1.  FiU  places  by  promotion  when  possible. 

2.  Hire  with  care.  It  creates  an  attentive  teachable  state 
of  mind  in  a  cancUdate  to  obser\'e  that  it  is  not  easy  to  get 
in.     Careful  hiring  wiU  abolish  wholesale  firing.     Harrington 


THE  EMPLOYMENT  OF  LABOR  193 

Emerson  has  pointed  out  the  noble  ideal  toward  which  first- 
class  administrators  should  work.  He  has  said,  ''It  ought  to 
be  as  difficult  to  enter  the  service  of  a  great  corporation  as  to 
pass  an  entrance  examination  to  West  Point;  but  once  in,  it 
ought  to  be  a  catastrophe  for  a  man  to  be  forced  to  leave, 
because  the  compan}^  provides  so  much  that  he  cannot  provide 
himself,  for  his  physical,  financial,  and  professional  welfare."  ^ 

3.  Elaborate  the  interview  or  the  preliminary  correspondence, 
with  a  view  to  judging  the  candidate  from  his  expression  of 
himself  rather  than  from  the  testimony  of  others. 

4.  In  examining  letters  of  recommendation  look  especially 
for  the  opinion  of  such  employers  as  are  noted  for  their  care 
and  success  in  hiring.  Of  letters  of  recommendation  President 
Emeritus  Chas.  W.  Eliot  has  said,  ''Experienced  officials  pay 
but  scanty  attention  to  testimonials  and  letters  of  recom- 
mendation, particularly  if  they  have  been  forwarded  through 
the  candidate,  or  procured  by  him.  Americans  are  apt  to 
be  too  charitable  and  good-natured  when  writing  letters  of 
recommendation.  They  are  also  fond  of  superlatives,  and 
are  too  apt  to  deal  only  with  merits,  omitting  defects,  when 
they  write  testimonials  at  the  request  of  a  candidate."  ^ 

5.  Somewhat  overstate  the  disadvantages  and  understate 
the  attractions  of  the  prospective  position.  During  the  period 
of  application,  the  candidate  is  likely  to  view  the  desired  place 
in  somewhat  too  rosy  a  hght,  especially  if  it  is  to  take  him  in 
from  the  cold  world  of  unemployment.  Some  sobering  of  the 
picture  only  serves,  therefore,  as  a  correction  by  which  things 
may  be  seen  as  they  actually  are.  Furthermore,  by  this  policy, 
those  looking  for  soft  berths  and  those  of  Httle  tenacity  of 
purpose  are  discouraged.  Those  who  are  finally  emploj^ed 
will  be  agreeably  surprised  to  find  the  reahty  better  than  the 
promise. 

1  Harrington  Emerson,  Efficiency  as  a  Basis  for  Operation  and  Wages, 
N.  Y.,  1912,  p.  58. 

2  Chas.  W.  Eliot,  University  Administration,  N.  Y.,  1908,  p.  91. 


194      ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

6.  Obsen-e  the  distribution  of  talent.  Men  trained  tc 
unusual  specialties  are  most  likely  to  be  found  in  large  cities 
where  the  differentiation  of  functions  is  greatest.  Simplicity 
of  character  and  personal  loyalty  is  most  apt  to  spring  from 
village  conditions.  To  have  held  position  in  noted  centres. 
such  as  Detroit  for  automobiles  or  G:ciyA  Rapids.  Mich.,  for 
the  fur:::'::  ::  ■■:-*:y.  where  the  rivahy  o:  -*::.:::;-rds  is  intense, 
is  an  evia  ::  :  — i-v  :::  ::::  r-:::-^'-  \  Une  should  h<^k 
for  "^h^  ^•::::.:..;::..:.- :^  :vi_cn  ?:r-:::t  :,   _.-:.-:n  phase  or  typ-r  lI 

pe::   :.ce.     The  men  who  do  a  certaui  khi\    ::  :v:.rk  well 

enough  to  :  :-  :nuster  ia  places  where  the  ace  :::;!: ^hment  is 
either  unusually  difficult  or  unusually  important  are  likely  to 
know  how  to  do  it  well:  they  h^v^  '  — ::  I  v  i  p  i  '  y  -r— - 
of  external  circumstance  or  of  inifrnal  nfct-ssity.  r-siariisn- 
ments  or  departments  presided  over  by  men  noted  for  abihty 
in  certain  lines  may  be  looked  upon  as  training  schools  for 
labor,  from  the  outside  employer's  point  of  ^'iew.  Competent 
employees  of  such  departments  are  graduates  who  can  carry 
with  them  the  methods  they  have  learned.  The  ser^-ice  depart- 
ments of  machine-manufacturing  concerns  may  often  be  con- 
sulted with  advantage,  for  they  are  interested  in  ha^Tng  their 
machines  efficiently  operated.  The  R.  Hoe  and  Company 
conducts  a  training  school  for  pressmen.  The  Mergenthaler 
Linotype  Company  does  the  same  for  operatives  of  its  ma- 
chines. Trade  expositions  sometimes  serve,  incidentally,  as 
clearing  houses  for  f~:":::-::.  ^~  !  makers,  draftsmen,  designers, 
and  others  skilled  h.  ^p  jUv.  ^^cs 

7.  Avoid  the  creation  of  blind-:/.-  y  occupations,  or  occu- 
pations which  interfere  with  the  school  education  of  youths. 
and  do  so  without  offering  the  offsetting  advantage  of  giving 
a  specific  training  for  a  higher  position.  Many  occupations, 
such  as  folding,  wrapping,  sorting,  and  pasting,  can  be  abol- 
ished by  the  introduction  of  machinery-,  or  by  this  means  be 
raised  to  the  plane  of  adult  occupations.  For  the  irreducible 
piiniTi-mm  of  uneducative  youthful  labor,  involved  in  such  work 


THE  EMPLOYMENT  OF  LABOR  195 

as  tending  door  and  running  errands,  the  shop  school  or  pubHc 
continuation  school  are  the  proper  counteracting  agencies. 

8.  Before  the  final  discharge  of  a  man,  a  reasonable  effort 
should  be  made  to  discover  his  aptitudes  by  transfers.  At 
the  plant  of  The  Ford  Motor  Company  in  Detroit,  the  power 
of  discharge  from  the  establishment  is  not  lodged  with  the  fore- 
men; they  can  only  discharge  men  from  their  departments. 
An  employee,  upon  receiving  a  departmental  discharge,  reports 
to  the  employment  office,  which  places  him  in  some  other 
department.  No  one  is  finally  dropped  until  a  succession  of 
departmental  discharges  has  demonstrated  his  general  ineffi- 
ciency. A  system  very  similar  to  this  is  used  by  The  Wm. 
Filene's  Sons  Co.,  in  Boston. 

9.  Avoid  a  general  lay-off.  The  problem  of  unemployment 
is  a  constant  invitation  to  some  form  of  radical  public  initiative 
such  as  the  inauguration  of  extensive  public  works,  or  the  adop- 
tion of  some  form  of  unemployment  insurance.  Those 
employers  who  dislike  the  extension  of  public  initiative  should 
remember  that  they  may  make  a  contribution  toward  the  solu- 
tion of  this  problem  by  regularizing  their  own  establishments. 
Conspicuous  successes  have  already  been  achieved  in  this  by 
establishments  in  some  of  the  most  seasonal  industries;  so 
that  the  plea  that  it  is  impossible  to  maintain  a  regular  force 
must  not  be  taken  too  seriously. 

10.  A  discharged  employee  should  be  protected  as  much  as 
possible.  A  discharge,  even  administered  with  the  utmost 
diplomacy,  is  a  blow  to  pride,  and  an  experience  which  tends  to 
break  down  courage  and  self-respect.  Fairness  demands  that 
the  minimum  of  injury  be  done  to  one  whose  failure  may  be 
more  than  half  due  to  some  oversight  or  inadequacy  of  the  em- 
ployer's agents.  Besides,  it  does  not  pay  to  turn  loose  an  enemy. 

The  psychology  of  employment.  —  The  evolution  of  experi- 
mental methods  in  psychology  is  preparing  the  means  of  more 
accurately  assigning  men  to  the  occupations  for  which  nature 
has   specially   endowed   them.     Competent  psychologists   are 


196      ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

now  prepared  to  test  the  sense  impressions  as  to  their  vividness, 
accuracy,  and  range.  They  can  measure  the  reaction  time, 
or  the  speed  of  response  to  various  forms  of  sense  impression. 
By  memorj^  and  association  tests,  the  nature  of  the  mental 
imagery  can,  to  some  extent,  be  laid  bare  and  the  customary 
thought  paths  revealed,  to  show  the  vocabular}^,  the  acuteness 
of  the  intellect,  the  direction  of  interest,  and  the  particular 
concepts  which  associate  themselves  with  emotion.  Dexterity 
in  various  simple  mental  and  manual  processes  may  be  deter- 
mined. And  so  the  psychologist  is  proceeding  gradually 
toward  the  discovery  of  what  holds  the  attention,  what  pleases, 
what  excites  to  anger,  and  what  dominates  the  ambition.  By 
exploring  the  world  of  sensation  and  affection,  advance  is 
being  made  toward  determining  the  quahty  of  consciousness 
and  the  springs  of  individual  action. 

Upon  the  basis  of  such  investigations,  there  is  already  being 
suggested  certain  classifications  of  individuals  which  promise  to 
become  of  practical  value  to  the  employer.  Professor  ]\Iuenster- 
berg  refers  to  the  men  who  are  interested  in  handhng  ph3'sical 
things,  as  contrasted  with  those  whose  dominant  interest  is 
in  deahng  with  people,  and  with  those  who  naturally  labor  in 
the  service  of  ideals.  And  the  same  investigator  refers  to 
tests  which  w^ill  distinguish  mental  efficienc}^  from  manual 
efficiency,  will  di\dde  the  settled  type  of  men  who  complain 
of  upsetting  changes  from  the  roving  t^^pe  who  complain  of 
monotony,  and  will  differentiate  the  dependent  individuals 
who  evade  authorit}^  from  those  directive  personaHties  who 
seek  it.^  The  best  known  classification  is  that  of  Wundt, 
according  to  wliich  a  fourfold  division  of  temperaments  is 
made,  '^On  the  ground  that,  in  every  individual,  there  must 
be  a  certain  combination  of  the  two  factors  of  strength  and 
speed  in  that  change  which  all  mental  processes  undergo.  The 
affections  of  the  mind  are  therefore  classifiable  as  either  strong 

^  Hugo  Muensterberg,  Vocation  and  Learning,  St.  Louis,  Mo.,  1912, 
p.  265;  Psychology,  General  and  Applied,  N.  Y.,  1914,  pp.  417-418. 


THE  EMPLOYMENT  OF  LABOR  197 

and  quick,  or  strong  and  slow;  or  else  as  weak  and  quick,  or 
weak  and  slow.  By  crossing  these  two  principles  of  division 
the  following  scheme  is  derived: 

Strong  Weak 

Quick Choleric Sanguine 

Slow MelanchoUc Phlegmatic 

"The  quick  temperaments  are  directed  rather  toward  the 
present,  the  slow  toward  the  future.  The  quick  require  addi- 
tional strength,  the  weak  additional  time,  in  order  to  achieve 
the  largest  amount  of  work  possible  for  them.  The  choleric 
and  phlegmatic  are  temperaments  with  respect  to  action;  the 
sanguine  and  melanchohc  are  temperaments  with  respect  to 
feehng."^ 

The  evolution  of  industiy  is  turning  emploj^ers  toward 
psycholog5^  The  increasing  fineness  of  the  division  of  labor, 
the  greater  significance  in  modern  labor  of  special  mental  endow- 
ments, the  accuracy  of  adjustment  of  the  factors  of  production 
aimed  at  by  the  advocates  of  scientific  management,  the  atten- 
tion attracted  by  the  movement  for  vocational  guidance,  and 
the  publication  of  cost  data  with  reference  to  the  "hiring 
and  firing  "  process  have  created  an  intense  eagerness  for  any- 
thing which  bears  the  word  psychology.  There  remains, 
how^ever,  an  immense  amount  of  scientific  work  to  be  done 
before  psychological  tests  will  be  serviceable  in  the  employment 
department.  The  apparatus  for  exploring  the  sense  impres- 
sions and  the  affections  can  only  be  practically  apphed  when 
the  various  occupations  have  been  resolved  into  their  essential 
component  psychological  elements  and  the  relative  significance 
of  these  parts  in  attaining  efficiencj^  has  been  determined. 
In  this  analysis  scarceh"  a  beginning  has  yet  been  made. 
Occasionally  the  psychologist  can  devise  a  complex  laboratory 
test  w^hich  reproduces  the  essential  psychological  situation 
of  an  occupation:    of  such  tests  barely  a  dozen  have  as  yet 

1  G.  T.  Ladd,  Physiological  Psychology,  N.  Y.,  1892,  p.  458. 


198      ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

proved  theii'  value.  In  tliis  juncture  the  true  scientist  asks 
for  time,  and  for  the  facihties  for  investigation;  but,  meanwliile, 
the  commercial  exploiter  rushes  in,  and  offers  a  mixture  of 
phrenology*'  and  pahnistry.  promising  to  practitioners  the 
speedy  development  of  an  uncann}'  power  of  divination. 

The  solution  of  the  problem  of  adjusting  talent  to  function 
will  require  the  support  by  society  of  largely  increased  facihties 
for  pure  research  in  psychology.  It  wiU  require,  also,  the 
introduction  into  industry  of  a  new  type  of  speciahst  —  a  man 
who  is  as  competent  in  psychology-  as  the  engineer  is  in  physics, 
or  the  physician  in  physiology*.  It  wiU  require  a  special 
development  in  the  schools,  to  permit  the  prolonged  observa- 
tion of  the  abilities  and  tendencies  of  the  young;  and  so  to 
supersede  the  ridiculous  efforts  now  being  made  to  measure 
and  catalog  personahties  in  a  single  inten^iew.  It  will  require, 
finally,  the  establishment  of  bureaus  of  vocational  guidance  to 
apply  the  economy  of  a  clearing  house  to  functions  which  most 
employing  concerns  can  never  afford  to  perform  according  to 
the  highest  standards  of  science. 

Law  of  the  labor  contract.  —  Legally  considered,  the  con- 
tract of  emplo^Tuent  must  contain  the  same  essentials  as  other 
contracts,  namely,  two  parties  competent  to  contract,  a  lawful 
consideration,  a  lawful  object  or  subject-matter,  and  mutual 
assent  or  an  agreement  ofoninds.  If  any  one  of  these  elements 
is  lacking  the  contract  is  volci.  The  existence  of  a  contract 
may  be  imphed  by  the  conduct  of  the  parties  without  any 
direct  discussion  of  terms,  as  where  one  labors  for  another  with 
his  knowledge  and  consent.  When,  after  the  expiration  of  a 
contract,  one  continues  to  labor  for  another  with  his  knowledge 
and  consent,  a  new  contract  is  thereby  formed  for  the  same 
period,  and  on  the  same  terms  as  the  previous  one.  If  a  con- 
tract for  emplo^-ment  is  for  more  than  a  year  it  is  only  valid, 
under  the  Statute  of  Frauds,  when  put  in  writing. 

Term.  —  If  the  term  of  a  contract  is  not  stated  it  may  be 
imphed,  either  from  the  custom  of  pajTuent  (it  being  reason- 


THE  EMPLOYMENT  OF  LABOR  199 

able  to  suppose  that  employment  is  to  endure  until  the  next 
regular  pay  day),  or  from  the  customary  term  of  contracts  for 
the  hke  class  of  labor,  or  from  the  expenditures  and  sacrifices 
made  by  either  party  to  carry  out  the  conditions.  If  a  man 
moves  his  family  to  a  new  place  specifically  to  accept  a  salaried 
position,  it  may  be  assumed  that  the  period  in  contemplation 
between  the  parties  was  more  than  a  week  or  month.  In 
general,  however,  if  emplo^^ment  is  for  an  indefinite  period, 
it  may  be  terminated  by  either  party  without  notice. 

Specific  enforcement.  —  The  law  will  not  compel  the  enforce- 
ment of  contracts  for  personal  services.  The  courts  have  no 
means  of  estabhshing  a  guard  over  a  man  to  see  that  he 
performs  his  work.  The  remedies  for  non-performance  are, 
therefore,  discharge,  and  action  for  damages. 

Discharge.  —  An  employer  has  a  right  to  discharge  an 
employee  for  (1),  wilful  disobedience,  (2),  misconduct,  (3) 
negligence,  and  (4),  incompetence. 

Disobedience.  —  Not  every  act  of  disobedience  is  ground 
for  discharge.  If  the  orders  of  the  employer  are  contrary  to, 
or  outside  of,  the  terms  of  the  contract,  or  are  unreasonable, 
or  impossible  of  execution,  obedience  is  not  required. 

Misconduct.  —  Misconduct  which  injures  the  employer's 
business  is  ground  for  discharge.  To  disclose  the  employer's 
business  secrets,  to  foment  discord  among  co-employees,  or 
induce  co-employees  to  quit  the  employer's  service,  to  take 
bribes  from  subordinates,  or  to  steal  the  employer's  property, 
are  some  of  the  acts  justifying  discharge.  Drunkenness  as 
a  habit,  or  on  specific  occasions  when  the  employer's  interests 
can  be  proved  to  have  suffered,  is  sufficient  cause  for  discharge. 

Negligence.  —  Negligence,  hke  misconduct,  must  be  of  such 
a  nature  as  to  injure  the  employer's  business,  before  it  becomes 
cause  for  discharge.  Illness  for  a  considerable  time  operates, 
within  the  meaning  of  the  law,  as  neghgence.  Absence  without 
good  cause,  especially  in  the  case  of  those  in  responsible  posi- 
tions, is  material.     For  a  similar  reason,  the  delegation  of 


200      ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

duties  to  another  without  notice  to  the  employer,  especially 
where  the  question  of  competence  is  an  important  one,  as  in 
the  case  of  an  architect  or  engineer,  is  not  sufficient  perfonnance. 

Incompetence.  —  An  employee  is  responsible  for  any  mis- 
representation, express  or  imphecL  as  to  his  skill,  experience, 
capacity,  or  training.  In  undertaking  work  an  employee,  in 
effect,  affirms  his  ability  to  perform  it.  Xor  can  he  plead  igno- 
rance of  the  nature  of  the  work,  at  the  time  of  entering  upon 
the  contract,  if  no  fraud  on  the  employer's  side  prevented  his 
securing  the  information.  If.  then,  the  employee  reveals  his 
inability  to  perform  the  work,  even  though  he  may  work 
with  all  his  energy  and  talent,  he  may  be  discharged.  If  an 
employee  accepts  added  duties  while  employed,  he  is  bound  to 
perform  them,  for  he  has  entered  into  a  new  contract  to  do 
so.  He  might,  lawfully,  have  declined  to  perform  them,  with- 
out iavahdating  the  original  contract,  but  ha^dng  once  assented 
to  the  new  duties,  he  is  bound  for  their  proper  performance. 

Wrongful  discharge.  —  If  an  employee  has  been  wrongfully 
discharged,  and  has  accjuiesced,  he  has  thereby  released  the 
employer  from  all  habihty.  ^\Tien  there  is  a  question  as  to 
whether  or  not  a  discharge  is  absolute,  the  proper  course  for 
the  employee  is  to  tender  his  services  until  they  are  deffiiitely 
refused;  for  performance,  or  tender  of  performance,  is  required 
of  one  party  before  he  can  require  performance  by  the  other 
party.  When  an  employee  has  been  wrongfully  discharged, 
he  is  bound  to  seek  similar  emplojTiient  with  reasonable 
dihgence,  in  the  same  general  locahty.  Failmg  in  this,  or 
securuig  less  remunerative  emplo^Tnent,  he  can  then  hold  his 
original  employer  hable  for  his  wages,  or  for  any  deficit  in  his 
wages.  He  is,  however,  not  bound  to  accept  emplo^Tuent  of  a 
different  kiud.  To  illustrate.  The  Central  Leather  Company 
had  bought  out  an  independent  concern.  The  superintendent 
of  this  concern  had  been  engaged  for  a  year,  and  refused  to 
resign  before  the  expiration  of  that  term  iu  favor  of  the  com- 
pany's  new   superiutendent.     He   was   notified   to   appear   at 


THE  EMPLOYMENT  OF  LABOR  201 

the  factory  and  earn  his  $8,000  salary  by  working  as  a  factory 
hand,  until  the  expiration  of  his  contract.  This  he  did,  think- 
ing it  necessary  in  order  to  maintain  his  rights.  His  only  duty 
would  have  been  to  make  a  reasonable  effort  to  obtain  another 
position  in  the  same  locahty  with  activities  substantially  the 
same  as  before.  FaiUng  in  this,  he  could  have  recovered  the 
balance  of  his  year's  salary  without  working  as  a  factory 
hand. 

Condonation  of  offense.  —  An  employer  having  once  con- 
doned an  action  cannot  later  discharge  the  employee  for  that 
action  alone.  The  retention  of  an  employee,  after  his  services 
have  become  unsatisfactory,  operates,  in  general,  as  a  waiver 
of  breach  of  performance,  and  entitles  the  employee  to  his 
wages  or  salary  for  the  period ;  but  it  does  not  afford  conclusive 
evidence  that  the  employer  has  completely  condoned  the 
offense,  for  he  has  a  right  to  take  into  consideration  the  signifi- 
cance of  a  series  of  offenses  in  determining  competence.  An 
employee  once  wrongfully  discharged  cannot  later  be  ordered 
to  return  to  work  and,  failing  to  do  so,  be  legally  discharged 
for  this  as  a  breach  of  performance.  There  can  be  but  one 
discharge  under  one  contract. 

Collective  bargaining  contracts.  —  The  following  headings 
and  specimen  clauses  are  presented  to  show  the  character  of 
the  agreements  which  are  more  and  more  frequently  being 
entered  into  between  employers,  or  organizations  of  employers, 
and  organizations  of  employees.  They  may  serve  as  a  guide 
in  drawing  up  agreements  where  collective  bargaining  takes 
place. 

1.  Definitions  as  to  the  nature  of  work  or  the  standards  of 
craftsmanship:  Such  definitions  are  introduced  into  agree- 
ments, either  for  the  purpose  of  reserving  certain  kinds  of 
work  to  men  of  a  given  trade,  or  to  classify  work  with  reference 
to  wages,  or  to  limit  and  define  the  application  of  certain  types 
of  equipment  or  of  certain  methods  of  doing  work. 

Definition  of  a  craft:   ''All  pointing  on  stone  and  brick  walls 


202      ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

done  \\"ith  the  trowel,  and  floating  plastering,  shall  be  done  by 
masons,  and  all  stonework,  whether  laid  up  dry  or  in  mortar, 
shall  be  considered  mason  work,  and  shall  be  done  by  masons. 
It  is  agreed  that  brick  floors,  laid  in  sand  and  then  grouted, 
can  be  laid  b}'  any  one  the  contractor  may  deem  fit ;  but  brick 
floors  laid  in  cement  mortar  is  mason's  work,  and  must  be 
done  b}'  masons." 

Mason  Cordis  Asso.  of  Rochester,  X .Y .,  and 
Bricklayers' ,  Plasterers' ,  and  Sto7ie?)iasons'  Union,  1910. 

Definition  of  a  craft:  ''Boilermaker's  work  is  defined  as  fol- 
lows: cutting  apart,  marking  off,  laying  out,  and  building 
work  pertaining  to  steam,  water,  air.  and  oiltight  sheet  and 
plate  work  from  nmiiber  sixteen  gauge  iron  or  steel  and 
upward;  boiler  inspection  and  testmg,  flanging,  patching, 
riveting,  chipping,  caulking,  and  tube  work." 

Boston   and  Maine   R.R.,   and 
Boilermakers,  1908. 

Country-  work:  '"Countiy  work  means  work  performed  by  a 
worker  which  necessitates  his  lodging  elsewhere  than  at  his 
usual  place  of  residence."  [Some  usual  provisions  of  coimtr>' 
work  contracts  are:  the  worker  to  be  conveyed  to  work,  or 
have  his  traveRing  expenses  paid  once  going  and  returning 
during  the  continuance  of  the  work,  time  occupied  in  travelKng 
to  be  paid  for  at  ordinaiy  rates,  and  workers  to  be  paid  an 

additional  sum  of  per  week,   or  in  lieu  thereof,   receive 

board  and  lodging  free.]  —  Xev:  Zealand  clause. 

Suburban  work:  ''Subm^ban  work  means  work  performed 
b}"  a  worker  at  a  distance  of  over  two  miles  from  his  employer's 
place  of  business,  but  which  does  not  come  within  the  definition 
of  countiy  work.  If  the  distance  requu-ed  to  be  travelled  in 
order  to  reach  the  place  be  more  than  two  miles  from  his  em- 
pWer's  place  of  business,  workmen  shall  be  paid  at  the  ordmar}- 
rate  of  wages  for  the  time  occupied  in  proceeding  to  the  work, 
for  the  excess  of  such  distance,  reckoning  the  time  taken  at 


THE  EMPLOYMENT  OF  LABOR  203 

the  rate  of  three  miles  an  hour.  If  conveyance  is  needed  it  is 
to  be  furnished  or  fares  paid."  — New  Zealand  clause. 

2.  Policy  of  Employment:  Various  stipulations  are  to  be 
found,  such  as  for  a  closed  shop,  for  a  closed  trade,  for  the 
preference  of  union  men  when  competent  union  men  are  avail- 
able, and  for  the  reservation  to  the  employer  of  complete 
Hberty  in  hiring  and  discharging. 

Closed  shop:  '^If  the  employer  shall  hereafter  engage  a 
worker  who  is  not  a  member  of  the  union,  and  who,  within  one 
calendar  month  after  having  been  engaged,  fails  to  become  and 
remain  a  member  of  the  union,  he  shall  dismiss  such  worker, 
if  called  upon  to  do  so  by  the  union,  provided  that  in  such  case 
the  union  shall  provide  a  worker  of  good  character,  competent, 
and  ready  and  willing  to  perform  the  work  required  to  be  done. 
Provided  also  that  the  rules  of  the  union  permit  any  person 
of  good  character,  competent  and  employed  in  the  trade,  to 
become  a  member  of  the  union  upon  payment  of  an  entrance 

fee  not  exceeding ,  upon  his  application,  without  ballot  or 

other  election,  and  so  to  continue  upon  continuing  subscrip- 
tions not  exceeding per ,  and  to  retire  from  the  union 

without  payment  of  anything  in  the  nature  of  a  fine  or  penalty." 

—  New  Zealand  clause. 

Closed  trades:  "Only  members  of  the  party  of  the  second 
part  [the  union]  are  entitled  to  do  the  work  in  the  following 
Unes,  to  wit:  every  kind  of  work  in  the  brew-house,  in  the 
fermenting  room,  cellar,  fill-out  cellar,  wash  house,  and  pitch- 
yard,  also  all  handling  of  empty  or  filled  barrels,  inside  of  the 
brewery,  to  drive  on  hoops,  tending  of  machinery  necessary  to 
drive  on  kegs,  cleaning  pipes,  whitewashing  inside  of  the  brew- 
ery, handling  of  all  material  necessary  to  the  manufacture  of 
beer  and  ale  inside  of  the  brewery  building.  Foremen  and 
assistant  foremen  need  not  belong  to  the  union." 

Sixteen  Buffalo  brewers  and 
Brewers^  Local  Union,  1910, 


204     ADMIXISTRATIOX  OF  INDUSTRIAL  ENTERPRISES 

Helpers:  ''Helpers  and  laborers  will  not  be  permitted  to 
do  boiler  makers'  work  or  be  advanced  to  the  detriment  of  the 
apprentice  or  boiler  maker." 

New  Ycyrk  Cent.  R.R.  and 

Inter?!.  Brotherhood  of  Bailer  Makers,  1910. 

Helpers:  ''^lachinists'  helpers  will  not  be  allowed  to  under- 
take or  execute  such  work  [enumerated  elsewhere  in  the  agree- 
ment] as  requires  the  skill  of  a  mechanic,  and  must  only  come 
in  contact  with  such  work  in  such  a  way  as  to  render  assistance 
to  a  machinist  or  apprentice." 

New  York,  Ontario  and  Western  R.R.  and 

Machinists,  1910. 

Promotion:  "All  employees  in  the  telegraph  service  will 
be  regarded  as  in  line  for  promotion,  advancement  depending 
upon  faithful  discharge  of  duties,  and  capacity  for  increased 
responsibihty."  Erie  R.R.  and 

Telegraphers,  1910. 

Promotion:  ''In  case  a  blacksmith  leaves,  or  the  company 
starts  another  fire,  the  oldest  smith  or  helper  quahfied  for 
promotion  shall  be  given  the  chance;  and  if  he  proves  satis- 
factory he  shall  receive  twenty-five  cents  additional  every 
three  months,  until  the  full  amount  of  that  fire  is  reached. 
Should  the  promoted  man  prove  incompetent  to  do  the  class 
of  work  done  on  the  fire  to  which  he  has  been  promoted,  after 
a  reasonable  length  of  time,  he  shall  be  set  back,  and  the  next  in 
fine  given  a  chance."  Boston  and  Maine  R.R.  and 

Blacksmiths,  1910. 

3.  Hours  of  work:  Agreements  relating  to  the  hours  of  work 
specify  variousl}-,  the  number  of  hours  constituting  a  day's 
work,  the  time  of  day  at  wliich  work  shall  begin  and  end,  the 
manner  in  which  shifts  shall  be  constituted,  and  the  hohday 
periods  on  which  work  shall  be  suspended  or  paid  for  at  extra 
rates. 


THE  EMPLOYMENT  OF  LABOR  205 

Hours  and  holidays:  ''Eight  hours  shall  constitute  a  day's 
work,  all  work  to  be  done  between  the  hours  of  8  a.m.  and  5  p.m. 
No  work  shall  be  executed  on  Saturday  between  the  hours  of, 
12  noon,  and  5  p.m.;  all  over  that  time  shall  be  paid  for  at  the 
rate  of  time  and  a  half,  except  Sunday,  New  Year's,  Washing- 
ton's Birthday,  Memorial  Da}',  Fourth  of  July,  Labor  Day, 
Thanksgiving,  and  Christmas,  which  shall  be  double  time." 
Master  Carpenters'  Asso.,  Yonkers,  N.Y.,  and 
Dist.  Council  Carpenters  and  Joiners,  1910. 

Overtime:   ''AH  time  worked  above hours  per  day  shall 

be  considered  overtime."  "Overtime  shall  be  allowed  only  for 
work  done  after  the  regular  quitting  tune."  "In  calculating 
overtime  each  day  shall  stand  by  itself."     "All  time  worked 

in  an}"  one  day  above hours,  or  in  any  one  week  above 

hours  shall  be  considered  overtime." 

Shifts:  ''In  case  of  necessity"  the  employer  shaU  have  the 
privilege  of  working  more  than  one  shift  of  men  within  the 
twenty-four  hours:  straight  time  to  be  paid." 

Employing  Plasterers'   Asso.  of  Buffalo,  and 
Mason  Builders'  Asso.,  1910. 

The  shift  and  wages:  "If  a  night  shift  is  arranged  to  fall 
chiefly  between  the  hours  of  9  p.m.  and  5  a.m.,  work  on  such 
shift  shall  be  paid  at  the  rate  of ." 

4.  Wages:  The  principal  points  in  trade  agreements  with 
reference  to  wages  are:  the  rate  per  hour,  day,  week,  or  month, 
the  rates  of  overtime  wages,  the  method  of  calculating  wages, 
as  by  piece  rates  or  by  a  bonus  system,  the  wages  of  apprentices 
and  under-rate  workers  and  part-time  workers,  the  wages  of 
temporary  work,  the  wages  of  spoiled  work,  the  manner  of 
setting  new  rates,  and  the  time  and  manner  of  making  pajTuents. 

Overtime  wages:    "Overtime  shall  be  paid  at  the  rate  of 

time  and  one-half. "       "All  overtime  up  to  o'clock  p.m. 

shaU  be  paid  for  at  the  rate  of ,  after  that  at  the  rate  of 


r06      ADMIXISTRATIOX   OF  IXDUSTRIAL  EXTERPRISES 

Apprentices'  wages:  ''Scale  of  discounts  for  apprentice 
mould  makers: 

First  year 33 J  ^c  discoimt  from  full  list. 

Second  year ^o 

Ti_  •   J        on       <<  *<  <<        *<      <« 

nird  year -U 

i  ourtn  year io 

ruth  year io 

U.  S.  Potters'  Asso.  and 
Nat'L  Brotherhood  of  Operative  Potters,  1909. 

Wages  of  temporan*  work:  "Any  man  taking  temporarily 
the  place  of  another  for  a  tune  exceeding  one  day,  shall  receive 
the  pay  of  same  during  such  incimibency.  but  such  pay  shall 
not  be  less  than  he  is  regularly  receiving." 

Brewers'  Ex.,  Rochester,  X.Y.,  and 
Five  local  u?nons,  1910. 

Wages  of  transfer  work:  "A  man  placed  on  a  higher  rated 
fire,  machine,  or  hammer  for  one  week  or  longer  will  receive  the 
rate  of  such  higher  rated  fire,  machine,  or  hammer.  Day 
workers  placed  on  a  lower  rated  fire,  machine,  or  hammer  will 
be  paid  their  regular  rates,  unless  the  change  is  permanent  on 
account  of  employee  being  incapacitated  for  his  former  work.'' 

A?nerican  Locomotive  Co.,  and 

Intern.  Brotherhood  of  Blacksjniths  and  Helpers,  1910. 

Wages  of  spoiled  work:  "Workmen  spoiling  work  through 
neghgence  or  other  culpable  error  shall  lose  remuneration  for 
the  time  put  upon  the  piece.  Employees  shall  not  be  obhged 
to  lose  the  value  of  the  time  expended  by  them  upon  material 
which,  through  no  fault  of  theirs,  is  discovered  to  be  defective 
after  they  shall  have  worked  upon  it.  Employees  charged 
with  the  value  of  spoiled  work  shall  receive  credit  for  the  value 
which  the  material  involved  may  have  for  other  purposes."' 

— Rod:  IsJarid  Arsenal. 


THE  EMPLOYMENT  OF  LABOR  207 

Setting  new  rates:  ''New  work  will  be  priced  within  a  reason- 
able time,  and  must  be  priced  before  25  %  of  the  total  number 
of  pieces  are  completed.  The  foreman  will,  if  necessary,  make 
a  special  allowance  equivalent  to  the  basic  piece  work  rate  to 
compensate  the  workman  for  any  loss  that  he  may  sustain  in 
g     new  JO  .         American  Locomotive  Co.,  and 

Internal.  Brotherhood  of  Blacksmiths 
and  Helpers,  1910. 

Manner  of  paying:  ''Wages  shall  be  paid  weekly  and  be 
ready  for  dehvery  at  the  shop  or  at  the  job  at  which  the  men 
shall  respectively  be  at  work,  at  5  p.  m.  on  pay  day,  and  half 
holidays  at  12  noon."  "Wages  shall  be  placed  in  sealed 
envelopes,  having  endorsed  thereon  the  name  of  the  wage 
earner,  the  number  of  hours  represented,  the  date  of  payment, 
and  the  amount  enclosed." 

Elec.  Contrs.  of  Rochester,  N.   Y.,  and 
Local   Union  of  Internat.  Brotherhood  of 
Elec.  Workers,  1910. 

5.  Apprentices:  With  reference  to  apprentices,  the  matters 
to  be  settled  are,  the  number  to  be  permitted,  the  rate  of  wages 
to  be  paid  [see  Wages],  the  length  of  the  apprenticeship  term, 
and  the  class  of  work  apprentices  shall  be  allowed  to  do. 

Number:    "To  a   contractor   working  on    an   average    the 
previous    year    two    masons,    one    apprentice;    five    masons, 
two  apprentices;    and  for  every  additional  ten  masons,  one 
apprentice."       ^^^^^^  Contr's  Asso.  of  Rochester,  N.Y.,  and 
Bricklayers',  Plasterers',  and  Stoiiemasons' 
Union,  1910. 

Ehgibility:  "The  sons  of  the  employers  shall  be  exempt  from 
the  terms  of  this  provision."  "Graduates  of  colleges,  univer- 
sities, or  technical  schools  of  collegiate  rank  may  be  employed 
as  apprentices  though  exceeding  twenty-one  years  of  age." 

Candidates:    "Candidates  for  apprenticeship  may  be    em- 


208      ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

plo3^ed   at  wages  not  to   exceed  months   to   prove 

aptitude,  without  being  enrolled  as  apprentices." 

6.  Managemeiit:  Some  of  the  problems  of  management 
which  are  most  likely  to  require  determination  in  collective 
bargaining  are:  whether  or  not  ^'unfair"  material  is  to  be 
debarred,  whether  or  not  restrictions  are  to  be  placed  on  out- 
put or  upon  the  use  of  machinery,  what  the  status  of  the  fore- 
man is  to  be,  and  what  privileges  are  to  be  accorded  to  union 
officers  at  the  works. 

No  restrictions:  ''Subject  to  the  special  provisions  of  this 
agreement,  the  emploj^ers  shall  retain  and  have  full  power  to 
manage  and  control  their  own  business  and  the  conduct  of 
their  employees  in  connection  therev/ith,  and  to  make  reason- 
able rules  and  regulations  not  inconsistent  with  the  provisions 
of  this  agreement  relating  to  the  management  thereof,  and  to 
the  hiring,  conduct,  duties,  and  dismissal  of  persons  in  their 
employment." — New  Zealand  clause. 

No  restrictions  on  materials:  *'No  restrictions  shall  be 
enforced  as  to  union  or  non-union  made  material,  except  that 
prison-made  material  shall  not  be  used." 

Restricted  materials:   ''The  company  agrees  to  provide  only 

union  materials  to  be  worked  upon  in  the  following  cases, , 

except  that  in  case  union  material  shall  be  unavailable,  non- 
union material  may  be  provided  upon  proof  of  the  fact." 

No  restrictions  on  work  and  machinery:  ''No  restrictions 
shall  be  placed  upon  the  amount  of  work  a  man  shall  perform 
during  working  hours,  nor  shall  restrictions  be  placed  upon  the 
installation  of  machinery  or  the  work  the  same  shall  do." 

Restricted  machinery:  "The  use  of  the  long  stroke  pneu- 
matic riveting  hammer  shall  be  abolished  on  stay-bolts,  and 
such  hammer  where  used  shall  always  be  manned  by  two  boiler- 
makers.  All  overhead  work  will  be  abohshed  with  the  long 
stroke  hammer." 

New  York  Cent,  and  Hudson  River  R.R.,  and 
Internal.  Brotherhood  of  Boiler  makers,  1900. 


THE  EMPLOYMENT  OF  LABOR  209 

Status  of  foremen:  ''The  foremen  shall  in  all  matters  be  the 
agents  of  the  emploj^er  solel}'."  ''If  a  foreman  be  a  member 
of  a  union  he  shall  not  be  subject  to  the  rules  of  his  union,  nor 
shall  any  fine  be  assessed  upon  hun  by  his  union,  while  he  is 
acting  as  foreman." 

Access  for  union  officers:  " The  company  agrees  that  the  busi- 
ness agent  of  the  union  shall  have  access  to  the  works  at  all 
times  during  the  working  hours,  but  shall  not  be  allowed  to 
interfere  with,  give  orders  to,  or  delay  the  men  on  the  work 
during  said  hours." 

7.  Arbitration:  A  prime  purpose  of  collective  bargaining 
contracts  is  to  avoid  strikes  and  lockouts.  An  essential  part 
of  such  contracts  has  to  do,  therefore,  with  the  procedure  to 
be  followed  in  case  of  disagreements. 

Arbitration:  "All  disagreements  arising  between  the  parties 
hereto,  shall  be  referred  by  either  party  for  settlement,  to  a 
board  of  three  arbitrators,  one  selected  by  each  of  the  parties 
to  the  cont rovers}',  and  the  third  by  the  two  so  selected. 
Decisions  of  the  Board  of  Arbitration  shall  be  final  and  binding 
on  all  parties  to  the  controversy." 

Elec.  Contrs.,  Rochester,  N.Y.,  and 
Local    Union  of  Inter nat.  Brotherhood 
of  Elec.  Workers,  1910. 

S}Tnpathetic  strikes:  "There  shall  be  no  sympathetic  strike 
for  any  cause  whatsoever  during  the  life  of  this  agreement." 

Mason  Builders^  Asso.,  and  Employing 
Plasterers'  Asso.  of  Buffalo,  N.Y.,  and 
Plasterers'    Union,  1910. 

Strikes:  "It  is  further  mutually  covenanted  and  agreed 
that  during  the  continuance  of  this  agreement  there  shall  not 
be  any  strikes  whatsoever  or  lockouts  declared  or  permitted 
by  either  party  hereto,  except  in  sympathy  with  local  trades, 
and  in  conformity  with  Section  4,  Article  4,  of  the  Constitution 


210     ADMIXISTRATIOX  OP  IXDUSTRIAL  EXTERPRISES 

01  the  I.  B.  E.  W..  of  the  present  date,  but  that  all  controversies 
shall  be  submitted  to  arbitration." 

Elec.  Contrs.,  Rochester,  X.Y.,  and 
Local  Union  of  I.  B.  E.  TT.,  1910. 

8.  Outside  work:  Clauses  with  reference  to  outside  work 
are  alwa3*s  prohibitive. 

No  outside  work  on  the  premises:  "While  on  the  premises. 
no  employee  shall  engage  in  any  other  than  the  employer's 
business.^' 

Xo  outside  work  after  hours:  "No .  while  in  employ- 
ment, shall  do  or  assist  in  doing  any work,  save  for 

his  employer,  for  pa\Tnent.  profit,  or  reward,  after  ordinary 
working  hours,  or  on  Sundays  or  hoUdays." 

9.  LayoffSj  dischargeSj  and  clearance  letters:  Clauses  on  these 
subjects  aim  to  avoid  sudden  or  sweeping  layoffs,  to  establish 
the  right  to  notice  before  the  termination  of  the  labor  contract, 
and  to  pro%'ide  employees  with  written  e\'idence  of  an  honorable 
discharge. 

Layoffs:  "Should  it  be  necessary  to  reduce  time,  the  working 
time  to  be  reduced  to  8  hours:  if  further  reduction  is  neces- 
sary, to  7  hours;  if  stiU  further  reduction  is  necessary-,  to  b€ 
di^'ided  equally  among  the  men  as  far  as  practicable." 

American  Locomotive  Co.,  and 
Internat.  Brotherhood  of  BlacJcsmiths 

and  Helpers.  1910. 

Notice:  "Any  member  holding  a  regular  place,  and  desiring 
to  quit  work,  must  give  notice  to  the  manufacturer,  and  then 
work  five  consecutive  days  afterward  in  his  regular  place. 
Manufacturers  desiring  to  discharge  members  must  give  them 
the  same  notice  with  the  same  rights." 

Glass  Bottle  Blowers'  Xatl.  Agreement,  1910. 

Clearance  or  semce  letter:  "Men  shall,  if  they  so  desire, 
upon  leaving  the  service,  be  given  a  letter  stating  the  nature 


THE  EMPLOYMENT  OF  LABOR  211 

and  time  of  service,  and  reason  for  leaving  the  same.     Said 

letter  to  be  given  within  ten  days." 

Boston  and  Maine  R.R.,  and 
Conductors  and  Trainmen,  1910. 

10.  Renewal  of  agreement:  In  providing  for  the  renewal  of 
agreements,  collective  bargaining  contracts  often  prescribe  in 
detail  the  time  and  manner  in  which  negotiations  with  reference 
to  changes  shall  pass  back  and  forth  between  the  two  contract- 
ing parties.  Automatic  renewal  is  usually  provided  for,  when 
no  changes  are  proposed  by  either  party. 

Automatic  renewal:  ''This  agreement  shall  be  operative  for 
years  from ,  and  if  no  notice  in  writing  of  altera- 
tion or  change  shall  be  made  by  either  party  on  or  before . 


Then  it  shall  be  deemed  extended  for  the  further  period  of 

years."  Elec.  Contrs.,  Rochester,  N.Y.,  and 

Internat.  Brotherhood  of  Elec. 

Workers,  1910. 

BIBLIOGRAPHY 

Clark,  C.  D.:   The  Law  of  the  Employment  of  Labor,  N.  Y.,  1911. 
Worman,  H.  A.:    Recruiting  the  Working  Force,  Factory,  Dec.  1907  to 

Jan.  1909  Incl. 
Gantt,  H.  L. :  Training  Workmen  in  Habits  of  Industry  and  Cooperation, 

Trans,  of  Am.  Soc.  of  Mech.  Eng.,  Vol.  30,   1908,  No.   1221,   pp. 

1037-1063. 
Carpenter,  C.  L'. :    The  Working  of  a  Labor  Department  ia  Industrial 

Establishments,  Engineering  ^Iag.,  Apr.  1903,  Vol.  2.5;  pp.  1-9. 
Commons,  John  R.:  Labor  and  Administration,  N.  Y.,  1913. 
Blackford,  Katherine  M.,  and  Xewcomb,  Arthur:    The  Job,  The  Man, 

and  The  Boss,  Garden  City,  N.  Y.,  1914. 
Miinsterberg,  Hugo:   Psychology  and  Industrial  Efficiency,  Boston,  1913. 
Scott,  W.  D.:  Increasing  Human  Efficiency  in  Business,  X.  Y.,  1911. 


CIL\PTER   XI 
FATIGUE 

Labor,  in  the  economic  sense,  may  be  defined  as  the  exer- 
tion of  man's  physical  and  mental  powers  in  the  production  of 
goods  and  service.  ^Tien  we  consider  the  results  of  labor  we 
say  that,  if  one  man  in  a  day  produces  100  imits  of  goods,  and 
another  200  units,  the  latter  has  performed  twice  as  much  labor 
as  the  former.  Physiologically  considered,  labor  is  an  activity 
which  destroys  tissue  cells  and  produces  poisonous  waste  matter 
in  the  SA'stem.  Considering  the  effect  of  the  process  upon  the 
laborer,  the  man  with  200  imits  of  product  may  have  destroyed 
four  times  as  many  tisvsue  cells  as  the  man  with  100  imits  if  his 
greater  output  is  primarily  the  result  of  greater  effort.  On  the 
other  hand,  the  more  productive  worker  may  not  have  destroyed 
as  many  cells  as  the  other  if  his  large  product  is  chiefly  the 
sign  of  greater  talent  and  facility.  The  law  of  increase  of  the 
physiological  cost  of  labor  diverges  widely  from  the  law  of 
increase  of  economic  results.  Fatigue  is  not  proportional  to 
results  but  to  the  energy-  exerted.  ^luch  of  this  energy-  may 
be  wasted.  When  physical  processes  are  not  guided  by  ade- 
quate mental  conceptions,  roundabout  and  awkward  move- 
ments result  which  produce  high  fatigue  per  imit  of  product. 
A  process  which  is  imperfectly  imderstood,  at  which  the  worker 
struggles  mentally,  and  over  which  he  worries  as  he  works,  will 
mean  much  fatigue.  In  all  work,  whether  mental  or  physical, 
native  aptitude,  training,  and  the  facQity  of  habit  are  highly 
important  as  means  of  reducing  fatigue.  Of  piu'ely  mental 
calculations.  Professor  Thomdike  says,  ''Greater  achievement 

212 


FATIGUE  213 

per  hour  means  less,  and  much  less,  fatigue  per  hour."  ^  A 
woolen  manufacturer  reporting  to  the  Tariff  Board  on  the 
causes  of  the  difference  of  output  of  weavers  said:  ''The  good 
weaver  never  seems  to  be  doing  an3^thing;  the  poor  weaver 
always  appears  to  be  hard  at  work.  The  good  weaver  is 
quietly  on  the  alert  for  things  to  happen;  the  poor  weaver 
is  always  fussing  around  to  catch  up  after  they  happen;  conse- 
quently the  good  weaver  not  only  produces  more  work  but 
better  work  than  the  poor  one."  ^  Another  manufacturer 
said:  ''It  is  not  a  question  of  quick  motions.  One  of  the  best 
weavers  we  have  is  a  man  of  very  slow,  almost  sluggish  motions. 
One  of  the  poorest  we  ever  had  was  a  nervous,  quick-motioned 
man.  The  first  made  every  move  count;  the  second  made 
three  unnecessary  moves  to  one  that  was  useful.  We  beheve 
the  same  types  will  be  found  am^'here  in  any  hne  of  work."  ^ 
Effort  and  performance.  —  It  has  been  found  that,  as  the 
work  of  an  individual  proceeds,  there  is,  at  the  beginning,  a 
brief  introductory  period  of  tuning-up,  during  which  effort 
becomes  increasingly  eas}^  and  agreeable,  while  production 
increases.  Thereafter  production  mounts  more  slowly  toward 
the  maximum,  without  material  change  of  sensation.  A 
period  of  some  duration  then  occurs  in  which  conditions  are 
fairly  uniform.  DecKne  at  first  proceeds  slowly,  and  then 
more  and  more  rapidly,  as  pleasure  fades,  and  effort,  strain, 
and  finalh'  pain,  make  their  appearance  in  consciousness.  At 
first  increasing  slowbr,  these  uncomfortable  sensations  intensify 
themselves  more  and  more  rapidly  until,  at  length,  the  essence 
of  the  task  becomes  largely  the  putting  forth  of  the  energy 
of  will  required  to  combat  them.  When  we  say  that  a  man  is 
"working  on  his  nerve,"  we  recognize  that  his  danger  is  one 
of  nervous  rather  than  muscular  disorganization.  At  last,  effort 
becomes  intolerable,  exhaustion  is  complete,  and  work  ceases. 

1  Edw.  L.  Thorndike,  Mental  Fatigue,  Journ.  of  Ed.  Psych.,  Vol.  2,  p.  69. 

2  Report  of  the  Tariff  Board  on  Schedule  K,  Washington,  D.  C,  1912, 
Vol.  4,  p.  1074.  3  /5j;^.^  p.  1073. 


214      ADMIXISTRATIOX  OF  IXDUSTRIAL   EXTERPRISE5 

Recovery.  —  From  moderate  fatigue,  recover^'  is  rapid  and 
complete,  the  replacement  beiag  with  stronger  tissue,  so  that 
power  is  iacreased  by  use.  From  great  fatigue,  recovery  is 
slow  and,  as  age  increases,  less  and  less  complete.  The  con- 
tinuance of  labor,  after  strain  makes  its  appearance,  causes  a 
destruction  of  muscular  and  brain  cells  which  iacreases  more 
rapidly  than  output,  and  so  disproportionally  lengthens  the 
period  required  for  recuperation. 

Wholesome  fatigue.  —  AU  degrees  of  fatigue  are  by  no 
means  e^'il.  The  world  is  far  from  the  point  where  fatigue, 
even  pronoimced  fatigue,  can  be  entirely  banished  from  indus- 
try. And  if  it  were  at  such  a  point,  it  would  signify  that  the 
working  classes  had  come  at  last  iuto  the  same  phght  as  those 
aristocratic  famihes  of  whom  Galsworthy-  speaks  in  The  Patri- 
cian, who  are  "*  compelled  to  de^i-se  adventiu-e  lest  they  lose 
behef  in  their  own  strength.""  [Many  people  are  mentally  and 
muscularly  flabby,  and  need  the  qtiickening  influence  of  vigor- 
ous effort  to  improve  the  physical  metabolism,  to  act  as  an 
alterative  to  the  tissues,  and  to  break  up  the  disrategrating 
habit  of  mind  wanderiug.  By  persistence  iu  the  affirmation 
of  one's  purpose,  and  by  bravery-  in  seh'-disciphne.  one  may 
discover  that  there  is  a  g^reat  difference  between  mere  apathy 
or  ennui  and  real  fatigue.  One  ma3'  find  that  minor  degrees 
of  fatigue  can  be  put  to  flight  by  concentration  of  attention 
and  enthusiasm.  And  when  true  fatigue  is  attained,  if  it  is 
properly  limited,  it  will  be  foimd  to  have  its  value  in  the  pur- 
chase of  rest,  content,  self-respect,  and  a  later  increase  of 
power.  Ex-President  Ehot  has  said,  "There  is  pleasing  in 
exertion,  even  when  it  is  pushed  to  the  point  of  fatigue,  as 
many  a  sportsman  knows;  and  this  pleasiu*e  is  in  good  measure 
independent  of  the  attainment  of  any  practical  end.  There 
is  pleasure  in  mere  sti-uggle.  so  it  be  not  hopeless,  and  in  over- 
coming resistance,  obstacles,  and  hardships."  ^ 

1  Chas.  W.  Eliot,  The  Durable  Satisfactions  of  Life,  X.  Y.,  1910, 
pp.   33-34. 


FATIGUE  215 

Overstrain,  —  Passing  beyond  that  reasonable  fatigue  which 
acts  as  a  moral  and  physical  therapeutic  agency,  it  must  be 
recognized  that  there  is  a  point  in  labor  where  the  exertion 
becomes  too  costty  for  the  results  achieved  —  too  costly 
for  the  w^orker,  too  costly  for  the  employer,  too  costly  for 
society.  This  may  be  called  the  point  of  overstrain.  Treves 
of  Turin  has  defined  overstrain  as  ''Work  done  in  a  state  of 
exertion  where  there  is  a  more  or  less  marked  and  persistent 
disproportion  between  the  usefulness  of  the  work  in  itself,  and 
in  the  worker's  estimate,  on  the  one  hand;  and  the  amount  of 
energj'  and  will  power  expended  on  it,  on  the  other  hand."  ^ 
Remembering  that  it  is  uneconomic  to  sacrifice  a  greater  good 
for  a  lesser  one,  it  must  be  a  rule  of  economics  that  labor  should 
cease  at  the  point  where  society  begins  to  suffer  a  greater  loss 
through  the  breakdown  of  the  laborer  than  the  gain  resulting 
from  the  product  of  his  exertion. 

Incomplete  recovery.  —  Recuperation  is  a  process  extending 
through  time.  The  point  of  quitting  must,  therefore,  depend 
upon  the  period  which  can  be  devoted  to  recovery.  If  the 
worker  is  so  fatigued  in  any  task  period  that  at  the  beginning 
of  the  next  period  he  has  not  fully  recovered,  a  deficit  is  pro- 
duced which  is  compounded  from  period  to  period.  Such  a 
schedule  can  only  be  justified  by  the  immediate  prospect  of  a 
longer  recuperation  interval,  which  will  restore  the  equiUbrium. 
We  compound  fatigue  from  task  to  task,  and  diminish  power 
throughout  the  working  day  as  shown  in  Figure  30.  And  we 
permit  this  incomplete  recovery  because  of  the  near  prospect 
of  the  overnight  rest.  Again,  we  compound  fatigue  more  or 
less  commonl}^  from  day  to  day  throughout  the  week  in  view 
of  the  week-end  recuperation.  (See  Figure  31.)  Saturday 
night  dissipation,  and  Sunday  stupor  or  iU  temper,  are  signs 
that  the  schedule  of  the  worker's  week  unduly  lowers  his 
resistance.     It  is  safer  and  more  profitable  for  all  concerned 

1  Ermudung  durch  Berufsarbeit,  Fourteenth  Intern.  Cong,  of  Hj^giene 
and  Demography. 


216      ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

to  limit  the  exhaustion  of  the  worker  to  that  from  which  he 
will  be  entirely  recovered  by  the  beginning  of  work  the  next 
morning.     To   compound  fatigue   for   periods   longer  than   a 


5 

9 

10        11 

12 

1 

2 

3 

4 

'""^-'~'>^— ^ 

^"""'^*^'''*»«- 

■— 

Fig.  30.     CoMPOTJXDiNG  OF  Fatigfe  Throughout  the  V»*ork  Day 

week,  coimting  for  recuperation  upon  the  annual  vacation,  or 
some  futiu-e  slack  season,  is  highly  dangerous.  It  is  to  nm 
the  risk  of  being  caught  in  the  ominous  chain  of  events,  the 


1 

Moa 

Tu^ 

Wed.    Th.     Fri. 

Sat.     Sun. 

V 

v/ 

v/--..A^ 

K 

Fig.  31.     The  Compou]st)Eng  of  Fatigue  throughout  thi:  Week 

elements   of   which   are    overexhaustion,    lowered    resistance, 
specific  disease,  and  death. 

Signs  of  overstrain.  —  Are  there  any  signs  by  which  we  may 
determine,  for  practical  piuposes,  when  the  limits  of  whole- 
some fatigue  are  being  exceeded  in  any  specific  case?  In  the 
identification  of  pronounced  temporary-  physical  and  nervous 
exhaustion  there  is  no  great  difficulty.  The  muscular  strength 
is  diminished,  the  eyehds  and  facial  muscles  are  relaxed,  focus- 
ins  of  the  eves  is  chfficult,  tactile  sensibiUtv  is  diminished, 
the  enunciation  is  poor  or  incoherent,  reaction  time  or  the 
period  between  sense  impression  and  response  is  increased, 
and  aU  the  movements  are  awkward  and  inadequate.     The 


FATIGUE  ■  217 

attention  wanders,  there  is  partial  loss  of  memory,  standards 
are  relaxed,  and  cruder  methods  long  outgrown  reappear.^ 
With  blundering  work  there  is  an  increase  of  accidents,-  while 
indifference,  wliich  testifies  to  mental  repose  alread}^  begun, 

1  Hartness  says,  very  aptly,  "It  is  not  well  to  try  any  new  thought  on 
a  physically  tired  man."  .\nd  he  illustrates  the  progressive  deterioration 
of  methods  incident  to  growing  fatigue,  as  follows:  "Suppose  we  take  two 
men  exactly  ahke  in  all  respects,  with  exactly  the  same  knowledge  of  work 
to  be  done,  and  let  them  together  undertake  to  dig  a  ditch,  or  repair  or 
adjust  an  intricate  machine,  or  any  other  kind  of  work.  Let  one  of  the 
men  get  in  an  awkward  position  to  shovel  earth  or  puU  a  WTench  and 
become  a  trifle  fatigued,  either  by  the  physical  strain  or  the  worry  of  the 
work,  and  let  the  other  take  a  less  strenuous  part  in  the  undertaking.  We 
wiU  find  that  one  has  been  changed  into  a  progressive  and  the  other  into 
a  conservative.  The  one  who  is  tired  from  the  strenuous  part  of  the  work 
cannot  see  why  the  other  should  suggest  digging  around  a  boulder  instead 
of  lifting  it  out  of  the  ditch  bodily,  or  why  it  may  not  be  necessary  to  dis- 
mantle the  whole  machine  in  order  to  discover  the  fault.  He  cannot 
tolerate  any  suggestion  of  a  new  method  of  working.  It  is  actually  easier 
for  him  to  do  the  work  by  the  more  laborious  but  'habit'  method." — 
Human  Factor  in  Works  Management,  pp.  50-51. 

-  The  accidents  reported  in  Illinois  in  one  j^ear  to  the  State  Factory 
Inspector,  are  given  by  Bogardus  as  follows: 

Hour  Number 

7-  7:  59 79 

8-8:59 150 

9-  9:  59 193 

10-10:59 246 

11-11:59 257 

12-12:59 49 

1-1:59 Ill 

2-  2  :  59 156 

3-  3:  59 227 

4-  4  :  59 260 

5-  5  :  59 145 

When  it  is  remembered  that  the  small  number  of  accidents  reported  between 
12  and  12  :  59,  and  between  5  and  5  :  59,  is  caused  by  the  small  number  of 
persons  employed  at  those  hours,  the  effect  of  fatigue  is  apparent.  — E.  S. 
Bogardus,  The  Relation  of  Fatigue  to  Industrial  Accidents,  Am.  Journ. 
of  Sociology,  Oct.  1911,  p.  512. 


21S      ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

or  bad  temper  and  a  feverish  pace,  which  indicate  toxic  ii'rita- 
tion,  reveal  the  abnormal  state  of  affairs. 

The  signs  of  accmuulated  fatigue  are  more  difficult  to  recog- 
nize, because  they  have  to  do  largely-  with  nervous  exhaustion, 
because  they  creep  on  gradually,  and  because  thej^  may  involve 
an  entire  industrial  group  in  a  collective  drift  away  from  normal. 
Xeurasthenia  betrays  itself  chiefly  by  nervous  irritability 
and  the  unusually  prompt  appearance  of  exhaustion  following 
effort.  To  these  signs  may  be  added,  as  occasional  inchca- 
tions,  disorders  of  the  special  senses,  tremor  of  the  fingers 
when  held  in  tension,  a  droopmg  eyehd,  palpitation  of  the 
heart,  and  nervous  dyspepsia. 

Speed.  —  The  fatigue  caused  in  accomphshing  a  given 
physical  effect  is  a  function  of  the  speed  of  performance.  This 
may  be  seen  in  the  difference  between  the  result  of  walking  a 
block  and  of  running  a  block.  It  is  not  a  simple  function, 
however,  for  exceedingl}'  slow  speeds  involve  a  large  expendi- 
ture of  effort  for  the  result  achieved,  because  of  the  energy 
which  is  absorbed  in  maintaining  a  posture.  In  general,  as 
speed  increases  fatigue  is  more  than  proportionally  increased. 

The  speed  standard  which  is  involved  m  the  ordinary  labor 
contract  is  an  extremely  vague  conception  expressed  by  the 
phrase  "a  fair  honest  pace."  The  actual  pace  which  results 
from  the  equilibrimn  estabhshed  between  the  employer's  fore- 
manizing  and  the  employee's  soldiermg  differs  from  shop  to 
shop,  and  is  somethnes  spoken  of  as  "the  habit  of  the  shop.'' 

Ideally  this  pace  should  be  full  of  snap,  and  expressive  of 
health}'  energ}-,  brmging  with  the  accomphshment  a  glow,  and 
preparing  the  way  for  true  repose.  It  should  be  enough  of  a 
trial  of  powers  to  hold  the  attention  from  vague  wandering, 
and  to  stimulate  the  mind  to  conceive  better  methods.  It 
should  be  such  that  the  worker's  conscience  can  be  clear,  and 
that  he  can  spurn  the  humihation  of  speeding  up  under  the 
eye  of  the  boss,  and  of  soldiering  when  his  back  is  tuTned.  Only 
by  such  a  pace  can  men  take  their  talents  out  of  the  napkin, 


FATIGUE  219 

and  obtain  the  ''usury,"  which  is  increased  strength  derived 
from  use. 

On  the  other  hand,  the  proper  pace  is  entirely  different  from 
the  fastest  speed  in  which  a  task  can  be  done.  The  latter 
is  of  interest  in  college  games,  but  is  not  appUcable  in  industry, 
except  in  such  rare  emergencies  as  fighting  a  fire  or  a  flood. 
We  have  just  defined  the  maximum  economic  speed  in  terms 
of  the  overnight  recuperative  process.  It  may  be  defined  in 
terms  of  maximum  life  performance.  Mr.  F.  W.  Taylor  has 
said,  "It  must  be  distinctly  understood  that,  in  referring  to 
the  possibilities  of  a  first-class  man,  the  writer  does  not  mean 
what  he  can  do  when  on  a  spurt,  or  when  he  is  overtaxing 
himself,  but  what  a  good  man  can  keep  up  for  a  long  term  of 
3^ears  without  injury  to  his  health,  and  become  happier  and 
thrive  under."  ^  Colomb,  the  physicist  of  Metz,  has  given  a 
rule,  albeit  somewhat  vague.  He  says  the  speed  under  load 
should  not  exceed  one-third  of  the  maximum  speed  of  move- 
ments without  load.  All  work-speed  standards  are  subject 
to  an  indefinite  deduction  in  view  of  the  energy  it  is  fair  for  a 
worker  to  reserve  for  his  life  interests  outside  of  working  hours. 

In  Figure  32,  an  attempt  is  made  to  characterize  various 
speeds  of  performance  in  terms  of  pleasure  and  pain.  The 
chart  is  offered  merely  as  a  general  scheme  of  relationships. 
Very  slow  speeds  are  irksome  (see  the  left-hand  portion  of  the 
chart).  Extremely  fast  speeds  involve  painful  stress  (see  the 
right-hand  portion  of  the  chart) .  There  is  a  middle  ground  of 
speed  at  which  work  may  be  long  continued  with  pleasure.  If 
on  this  graphic  base,  representing  speed  in  relation  to  sensation, 
we  indicate  the  different  paces,  it  seems  fair  to  say  that  the 
pace  of  soldiering,  ''A,"  is  painful  to  a  healthy  worker,  who  is 
adequately  adapted  to  his  work  by  talent  and  training,  and  who 
possesses  normal  ambition.  The  average  or  ''good  honest  " 
pace,  "B,"  is  not  unpleasant,  but  it  does  not  possess  the  thrill 

1  Hearings  before  the  H.  of  R.  Sp.  Com.  on  The  Taylor  and  Other 
Systems  of  Shop  Management,  Washington,  D.  C,  1912,  II,  p.  928. 


220      ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 


of  first-class  achievement.  The  optimum  pace,  "C/^  may  be 
identified  as  practically  the  ''standard  "  pace  aimed  at  by 
scientific  management.  With  these  economic  paces,  the  maxi- 
mmn  possible  pace,  ''D,"  which  characterizes  the  brief  spurts  of 
effort  of  competitive  athletics,  has  nothing  whatever  to  do. 


Pain 


Pleasure 


B 


Speed  of  Performance 

A=Pace  of  soldiering 
D= Good  honest  days  work 
C=  Standard  pace  of  scientific  mana^menl 
D=  Maximum  pace  of  athletics 

Fig.  32.    The  Paces  op  Working 

Stress.  —  Speed  disintegrates  itself  into  stress  and  fre- 
quency. By  stress  is  here  meant,  not  overstrain  or  the  con- 
sciousness of  unwholesome  fatigue,  but  simply  the  degree  of 
intensity  of  effort.  The  German  economist  Herkner  has 
described  the  safe  physiological  limits  of  stress  as  follows: 
''Energetic  muscular  work  makes  extra  work  for  the  heart, 
lungs,  and  digestion,  that  is  easily  estimated.  If,  for  instance, 
the  pulse  rate  exceeds  50-60  per  cent  of  its  rate  when  at  rest  — - 
if  it  is  over  140,  and  if  after  10  minutes'  rest  it  has  not  yet  fallen 
to  normal,  we  have  before  us  an  injurious  degree  of  fatigue. 
Respiration  should  not  exceed  the  rate  existing  in  a  state  of 


FATIGUE  221 

rest  bj"  more  than  75  per  cent,  and  after  a  fifteen  minutes'  pause 
for  rest  it  should  not  remain  higher  than  30  per  cent  above 
normal.  Elevation  of  the  body  temperature  to  39°  or  40° 
centigrade  (Fahrenheit  103°-104°)  is  unquestionably  very 
harmful."  ^ 

Intermittency.  —  The  physicist  Maschek  has  proposed  the 
rule  that  the  time  occupied  in  strenuous  endeavor  should  not 
greatly  exceed  one-third  of  the  twenty-four  hours.  This  looks 
suspiciously  hke  our  old  friend,  ''Eight  hours  for  work,  eight 
hours  for  play,  and  eight  hours  for  rest."  At  all  events,  it 
is  of  little  use,  for  it  does  not  explain  what  continuity  of  exer- 
tion is  contemplated  during  the  eight  hours;  nor  does  the  word 
''strenuous"  give  an  accurate  idea  as  to  stress.  Tables  have 
been  prepared  by  some  of  the  leaders  of  scientific  management 
showing  what  proportion  of  the  working  day  should  be  under 
load,  for  different  kinds  of  labor,  but  these  tables  have  not 
yet  been  made  public.  Mr.  Taylor  tells  us  in  The  Principles 
of  Scientific  Management,  "It  is  possible  for  the  workman 
to  be  under  load  for  only  a  definite  percentage  of  the  day.  For 
example,  when  pig  iron  is  being  handled  (each  pig  weighing 
92  pounds),  a  first-class  workman  can  only  be  under  load  43 
per  cent  of  the  day.  He  must  be  entirely  free  from  load  during 
57  per  cent  of  the  day.  And,  as  the  load  becomes  lighter,  the 
percentage  of  the  daj^  in  which  the  man  can  remain  under  load 
increases.  So  that,  if  the  workman  is  handling  a  half-pig, 
weighing  46  pounds,  he  can  then  be  under  load  58  per  cent  of 
the  day,  and  only  has  to  rest  during  42  per  cent.  As  the 
weight  grows  lighter,  the  man  can  remain  under  load  during  a 
larger  and  larger  percentage  of  the  day."  ^ 

When  a  high-grade  performance  is  aimed  at,  there  must  be 
careful  control  of  the  factor  of  intermittency,  or  of  the  schedule 
of  work  and  rest  periods,  if  the  danger  of  overfatigue  is  to  be 
avoided.     The  operation  of  the  schedule  must  be  close  enough 

1  Article  Arbeitszeit,  in  Conrad's  Handworterbuch  der  Staatswissen- 
schaften,  Second  Edition.  ^  Pages  57-58. 


222     ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

to  check  the  worker  on  the  minute  from  unduly  prolonging 
his  exertion.  To  illustrate  the  fineness  of  control  already 
being  practised  in  some  estabUshments,  a  couple  of  instances 
may  be  given.  Mr.  C.  E.  Knoeppel  started  with  workmen 
who,  at  their  own  gait,  had  been  producing  16  pieces  per  hour. 
By  establishing  a  25  minute  working  period  and  a  5  minute 
rest  period,  he  obtained  18  pieces.  By  changing  to  17  minutes 
of  work  and  3  minutes  of  rest  the  output  rose  to  22  pieces  per 
hour.  Finall}',  by  arranging  a  10  minute  work  period  and 
a  2  minute  rest  period,  production  became  25  pieces.^  In 
another  case  where  a  record  of  driving  1,600  rivets  per  day  was 
obtained,  the  previous  performance  having  been  600  per  day, 
Mr.  H.  F.  Stimpson  established  rest  periods  of  2  minutes  between 
each  10  rivets,  thus  devoting  320  minutes,  or  5  hours  and  20 
minutes  out  of  the  10  hour  day  to  rest,  and  employing  a  schedule 
of  If  minutes  of  work  and  2  minutes  of  rest.^ 

Administration  and  fatigue.  —  As  the  laws  of  fatigue  become 
more  accurately  estabUshed  through  scientific  investigation, 
industrial  managers  will  be  held  to  closer  account  by  public 
opinion.  What  is  already  known  is  sufficient  to  demonstrate 
the  fact  that  the  regulation  of  the  pace  is  too  comphcated  a 
matter  to  be  left  in  the  hands  of  the  operative.  Speed,  stress, 
and  intermittence  are  compounded  in  infinite  variety  in  differ- 
ent kinds  of  work.  If  high  records  of  production  are  to  be 
attained  with  safety,  these  variables  must  be  under  scientific 
control.  Pace-making  has  alwaj^s  been  recognized  as  an 
important  factor  in  athletics,  where  brief  tests  are  made  with 
contestants  who  are  in  the  elastic  period  of  3'outh.  It  is  much 
more  important  when  the  object  is  to  determine  the  stroke  of 
the  nation's  industry,  and  to  set  a  pace  which  shall  be  whole- 
some as  the  habit  of  a  lifetime. 

The  difficulty  of  detecting  the  signs  of  accumulated  fatigue 

1  The  Psychology  and  Ethics  of  Wage  Payment,  p.  9. 

2  Hearings  before  the  H.  of  R.  Sp.  Com.  on  The  Taylor  and  Other 
Systems  of  Shop  Management,  Washington,  D.  C,  1912,  I,  pp.  663-664= 


FATIGUE  223 

at  an  early  stage  makes  advisable  the  establisliment  of  two 
policies.  The  first  is  that  the  task  should  be  kept  well  within 
the  limits  of  safet}',  just  as  in  the  use  of  machinery  the  stresses 
employed  are  kept  well  within  the  elastic  hmit  of  materials. 
The  second  poHcy  is  that,  just  as  in  engineering  practice  where 
it  is  impossible  to  observe  the  effect  of  repeated  stresses  upon 
equipment  such  as  the  hooks  of  cranes  or  the  links  of  hoisting 
chains  the  parts  are  periodically  annealed  to  restore  their 
phj^sical  properties,  so  workers  to  whom  the  first-class-man 
standard  is  applied  should  be  kept  in  physical  tone  and  nervous 
poise  by  frequent  vacations,  and  by  the  provision  of  adequate 
means  of  daily  recreation. 

Pace-making  as  a  managerial  function.  —  The  laborer 
knows  his  feelings,  no  doubt,  but  he  often  does  not  know  w^hat 
they  signify  with  respect  to  fatigue,  an}^  more  than  he  does  with 
reference  to  specific  disease.  He  can  no  more  expect  to  attain 
a  high  performance  at  his  own  pace  with  safety,  than  an  ama- 
teur athlete  can  expect,  without  coaching,  to  pace  himself 
correctl}^  for  a  mile  run.  Unregulated  piece  work  is  known  to 
be  a  fertile  cause  of  phj^sical  exhaustion  and  neurasthenia 
among  certain  groups  of  wage  earners.  Under  good  manage- 
ment, exceptional  performance  will  only  be  attempted  after 
the  conditions  of  the  task  have  been  subject  to  the  minute 
analysis  of  motion  study  and  time  study,  after  the  proposed 
exertion  has  been  carefully  figured  on  a  horse-power  basis 
by  competent  engineers,  and  after  the  operatives  have  been 
selected  on  the  basis  of  fitness  for  the  task.  The  workman 
should  be  taught  the  exact  rhythm  or  sequence  of  work  and 
rest  periods,  for  his  own  safety.  Excess  performance  should 
be  investigated  even  more  promptly  and  thoroughly  than  defi- 
cit performance,  in  order  to  prevent  the  injury  of  valuable 
men. 

When  we  say  that  pace-making  is  a  managerial  function  we 
do  not  intend  at  all  to  say  that  it  is  a  capitaUstic  privilege.  There 
is  a  distinction.     Like  many  other  supervisory  functions  pace- 


224      ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

making  is  a  part  of  that  newly  established  art  of  administra- 
tion which,  if  it  is  ever  to  become  a  complete  success,  must  be 
in  the  hands  of  a  profession  with  distinctive  professional  ideals 
standing  between  labor  and  capital,  and  aiming  to  combine 
the  factors  of  production  in  a  just  balance  of  interests.  This 
art  of  administration  is  something  more  profoimd  than  the 
current  art  of  getting  rich  or  of  earning  big  di\-idends  on  capital 
stock. 

Fatigue  and  the  design  of  equipment.  —  So  long  as  adminis- 
trators have  created  the  conditions  under  which  it  has  been 
more  troublesome  and  more  dangerous  and  less  profitable 
for  the  workman  to  call  attention  to  the  conditions  which  inter- 
fere with  production  than  to  retard  the  pace  by  shpping  in  secret 
recuperation  periods  throughout  the  day,  jtist  so  long  soldiering 
has  ser^'ed  to  hide  from  the  management  a  world  of  badh' 
planned  processes.  Likewise,  soldiering  has  covered  with  a 
mantle  of  secrecy  the  bad  design  of  machinerA'.  If  a  wrongly 
placed  lever  has  called  for  more  fatigue  than  the  laborer  could 
regularly  absorb  at  the  pace  which  the  demonstrator  used  for 
a  brief  test,  there  has  been  the  opportunity  of  interposing 
unnecessar\-  stoppages  when  the  head  of  the  boss  was  tm'ned. 
Thus  the  machine  has  continued  to  seem  the  acme  of  perfec- 
tion to  its  builders  although,  for  mysterious  reasons,  the  users 
have  never  achieved  the  expected  results.  It  is  quite  possible 
for  the  minds  of  operatives  to  be  full  of  the  knowledge  of  defec- 
tive processes  and  imperfect  equipment,  but  for  the  manage- 
ment never  to  get  access  to  this  stock  of  knowledge,  because 
it  has  never  de\'ised  a  plan  of  administration  and  a  s^^stem  of 
rewards  which  made  frankness  safe  between  management  and 
men  \sith  reference  to  the  factor  of  fatigue. 

Pace-making  must  be  scientific.  —  To  guess  at  the  proper 
pace  will  no  longer  do.  It  has  been  tried ;  and  when  the  attempt 
has  been  made  to  overdrive,  the  response  of  the  workman 
has  been  soldiering;  a  deceit  which  has  spread  in  the  ranks 
hke  an  infectious  disease,  to  the  immense  impoverishment  of 


FATIGUE  ^  225 

all  factors  in  industiy.^  The  natural  response  to  an  unreason- 
able task  is  feigned  labor.  Stupid  managers  have  argued 
that,  since  da}^  wages  are  calculated  for  a  continuous  stretch 
of  time,  labor  should  be  continuous  throughout  the  day.  But 
all  human  energy-  is  intermittent,  and  rest  periods  have  been 
imperative.  The  laborer  has  been  obhged  to  get  them  by 
deceit. 

When  management  becomes  scientific  we  may  hope  to  get 
rid  of  this  deception;  for  soldiering  is  a  miserable  hybrid 
thing,  neither  work  nor  rest,  and  without  merit,  except  as  a 
weapon  of  warfare,  either  in  the  world  of  work  or  in  that  of 
recreation.  When  a  man  works  he  should  accomplish  results 
commensurate  with  the  value  of  his  time.  When  he  rests  he 
should  relax  tired  muscles,  and  cease  the  strain  of  attending, 
and  take  100  per  cent  rest. 

BIBLIOGRAPHY 

Goldmark,  Josephine  C:  Fatigue  and  Efficiency,  X.  Y.,  1912. 

Lee,  F.  S.:   Fatigue,  Philadelphia,  1906. 

Mosso,  A.:   Fatigue,  Trans,  by  M.  and  W.  B.  Drummond,  N.  Y.,  1904. 

Bogardus,  E.  S.:    The  Relation  of  Fatigue  to  Industrial  Accidents,  Am. 

Journ.  of  Sociologj^,  Sept.,  Oct.,  and  Nov.  1911,  Vol.  17,  pp.  206-222, 

351-374,  512-539. 
Gilbreth,  Frank  B.:   Fatigue  Study,  New  York,  1916. 

1  For  some  descriptions  of  the  state  of  affairs  see  Hearings  of  the  H.  of 
R.  Sp.  Com.  on  The  Taylor  and  Other  Systems  of  Shop  Management, 
Washington,  D.  C.,  1912, 1,  pp.  82-83;  II,  pp.  843,  1107;  III,  p.  1266. 


CHAPTER  XII 
THE  MEASUREMENT  OF  WAGE  FACTORS 

The  wage  problem  is  the  endeavor  of  employers  and  emplo3^ees 
to  estabhsh  a  ratio  between  money  and  services,  and  by  so 
doing  bring  the  value  scale  and  the  effort  scale  into  connection 
with  each  other. 

A  part  of  the  difficulty  of  doing  this  lies  in  the  lack  of  ade- 
quate information  in  the  hands  of  all  parties  interested,  as  to 
the  general  conditions  which  at  any  time  determine  the  relative 
scarcit}^  or  plethora  of  human  productive  power  in  any  market. 
Among  these  conditions  are  the  demand  for  commodities, 
production  costs  taken  in  relation  with  prices  to  determine 
profits,  the  supply  of  capital  available  for  investment,  the  supply 
of  managerial  ability,  the  openness  of  the  field  of  enterprise, 
and  the  soundness  of  conditions  on  the  money  market  and  the 
security  market.  Some  conditions  on  the  side  of  labor  supply 
are  the  number  of  operatives  who  possess  the  talent  and  train- 
ing necessary  for  the  work  under  consideration,  the  rate  of 
inflow  of  immigration,  the  effect  of  educational  agencies,  and 
the  opportunities  for  self -employment.  Until  information  is 
more  intelligently  gathered  and  classified  on  these  matters 
than  at  present,  the  labor  market  is  bound  to  present  a  great 
divergence  of  opinion  as  to  the  value  of  labor,  and  consequently 
to  involve  a  constant  turmoil  of  higgling  and  bargaining  in 
determining  the  exact  price,  between  these  wide  Hmits,  at  which 
purchase  and  sale  transactions  will  take  place. 

There  is  still  another  reason  why  the  labor  market  achieves 
only  a  bungling  approximation  to  a  true  equilibrium,  and  this 

226 


THE  MEASUREMENT  OF  WAGE  FACTORS  227 

is  that  in  any  specific  case  the  exact  labor  capacity  offered  is 
uncertain,  and  the  nature  of  the  task  which  the  employer  will 
present  is  equally  uncertain.  Of  the  laborer  the  age,  sex,  and 
nationahty,  the  last  employer,  and  a  fragment  of  the  experience 
is  known.  The  constitutional  vigor  and  state  of  health  some 
employers  are  now  determining.  But  there  is  little  knowledge 
as  to  neatness,  accurac}^,  dexterit}^,  speed,  and  dependability; 
as  to  education,  general  and  vocational,  and  experience  in  the 
craft;  as  to  outside  causes  of  worry;  and  as  to  originality, 
loyalty,  and  the  other  quahties  which  fit  the  possessor  for 
higher  positions.  On  the  other  hand,  there  is  the  utmost 
variety  in  the  nature  of  tasks:  and  employers  are  onty  beginning 
to  formulate  the  requirements  necessary  for  success  in  various 
kinds  of  work.  Equally  great  is  the  variety  of  conditions  which 
surrounds  the  worker  while  rendering  his  service.  The  emploj^er 
cannot  intelhgently  define  the  stress,  speed,  and  intermit- 
tency  of  effort  expected,  nor  the  responsibility  and  nervous 
tension  which  will  rest  upon  the  worker.  The  comfort  or  dis- 
comfort of  the  working  quarters,  the  foremanizing  methods, 
the  poHcy  of  promotion,  and  the  permanency  of  the  job  are 
not  under  close  control.  Everywhere  there  is  lack  of  accurate 
calculation  of  these  essential  factors,  and  lack  of  standardization 
of  them.  With  such  a  mass  of  indeterminate  elements  the 
wage-setting  process  can  hardly  be  other  than  a  wrangle,  like 
that  of  a  coolie  buying  a  cabbage  in  a  Chinese  market,  or  a 
diplomatic  game  like  the  purchase  of  a  rug  in  an  Oriental 
bazaar.  Because  of  such  conditions  great  inequalities  in  wage 
rates  exist  without  adequate  reason;  neither  party  to  a  wage 
transaction  can  be  sure  it  has  received  justice,  there  is  much 
suspicion,  relationships  are  strained,  and  much  energy  is  di- 
verted from  production  to  carrj^  on  a  warfare  both  secret  and 
outspoken. 

The  application  of  science.  —  In  the  interest  of  a  fair  wage 
it  is  greatly  to  be  desired  that  science  should  be  applied  to  the 
measurement    of   these   indeterminate    or    crudely   calculated 


228      ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

factors  of  the  labor  problem.  Every  element  which  can  be 
reduced  to  measurement,  and  every  functional  relation  which 
can  be  defined  with  clearness,  serves  by  so  much  to  reduce  the 
tangled  mass,  and  bring  the  wage  level  to  the  point  where  it 
accurately  balances  supply  and  demand.  A  wage  based  upon 
measurements  will  respond  chiefly  to  the  permanent  conditions 
and  general  tendencies,  and  will  be  little  disturbed  by  the  mere 
strategy  of  bargaining.  Such  a  wage  will  be  relatively  stable, 
for  the  variations  of  fundamental  conditions  are  less  than 
the  fluctuations  of  ignorant  opinion  as  to  those  conditions.  It 
is  certainly  to  the  laborer's  interest  to  get  the  labor-valuing 
process  into  the  hands  of  persons  of  scientific  temper,  and  get 
scientific  agencies  apphed  to  the  calculation  of  wages.  It  may 
be  responded  that  the  laborer  hopes  to  estabhsh  a  process  of 
collective  bargaining.  To  this  it  can  be  answered  that  col- 
lective bargaining  is  mass  action.  It  suffers  from  the  hmita- 
tion  of  democracy  in  that  it  can  only  act  well  upon  simple 
issues.  Any  scientific  process  which  will  standardize  labor 
conditions,  and  will  dress  away  a  host  of  collateral  issues  by 
giving  them  indisputably  fair  measurement,  and  will  thus 
leave  clear  the  central  point  of  the  wage  question,  will  fit  that 
question  to  be  acted  upon  by  the  slow  and  cumbersome  processes 
of  collective  action. 

It  is  apparent  that  the  jealousy  existing  between  capital 
and  labor  offers  an  obstruction  to  the  progress  of  the  scientific 
study  of  the  factors  involved  in  fixing  the  price  of  labor  or  in 
determining  the  efficiency  of  labor.  It  is  greatly  to  be  desired 
that  non-partisan  agencies  should  be  created  to  carry  forward 
this  fine  of  research.  The  laboratories  of  engineering  schools 
might  take  part:  the  aid  of  The  Federal  Bureau  of  Standards 
might  be  invoked. 

As  to  the  influence  which  the  pubUc  conscience  can  exert 
upon  the  wage  levels,  we  must  remember  that  only  clear  ideas 
propagate  themselves  easily  from  mind  to  mind.  Any  stand- 
ardization of  elements  which  will  make  it  possible  to  take  the 


THE  MEASUREMENT  OF  WAGE  FACTORS  229 

labor  problem  to  pieces,  and  decide  one  element  of  it  at  a  time, 
will  make  for  a  more  intelligent  and  forceful  public  opinion. 

Standardization  of  conditions.  —  The  first  step,  then,  toward 
a  rational  wage  is  the  exact  definition  of  the  conditions  under 
which  labor  is  to  be  performed.  Definition  can  only  be  exact 
when  conditions  are  under  control,  that  is  to  say,  are  standard- 
ized. The  process  of  standardization,  described  elsewhere 
in  this  book,  plays  the  same  part  as  an  aid  to  economic  analysis 
that  laboratory  control  does  to  investigation  in  the  experimental 
sciences. 

Standardization  of  the  laborer.  —  The  next  step  toward  a 
scientific  wage  is  the  standardization  of  the  laborer.  The 
individuahzation  of  labor  records  by  the  better  class  of  employ- 
ers is  now  providing  a  means  of  studying  the  performance  of 
employees  in  sufficient  detail  to  lay  bare  the  conditions  essential 
to  efficiency.  The  invention  of  motion  study  and  time  study 
provides  industry  at  last  with  an  instrument  of  precision  com- 
parable with  the  microscope  in  its  relation  to  the  biological 
sciences.  And  now  vocational  education  and  vocational  guid- 
ance, laying  hold  of  various  physiological  and  psychological 
tests,  promise  to  give  to  employees,  at  the  threshold  of  indus- 
trial life,  a  wiser  guidance  than  has  heretofore  been  possible. 
In  so  far  as  this  provides  a  cleaner  grouping  of  men  into  classes 
according  to  talent,  it  will  make  possible  greater  definiteness 
in  standards  of  competency.  These  changes  will  inaugurate 
within  industrial  establishments  a  sifting  process,  the  object 
of  which  will  be  to  shake  incompetents  down  and  raise  the 
talented  up,  until  each  operative  finds  the  level  upon  which 
he  is  a  first-class  man. 

The  first-class-man  standard.  —  The  new  ideal  of  work- 
manship is  being  expressed  as  the  standard  of  "the  first-class 
man."  To  some  persons  this  suggests  a  standard  based  upon 
a  pace-maker;  but  in  reality  it  is  the  only  plan  by  which  the 
influence  of  the  pace-maker  can  be  eliminated.  If  ten  persons 
be  chosen  at  random  for  a  quarter-mile  race,  the  records  will 


230      ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

involve  a  great  spread  of  performance,  and  the  better  men  will 
shame  the  poorer  ones.  Such  a  record  may  be  represented  by 
Figure  33. 


Average 
Fig.  33.    Record  of  the  Performance  of  Unselected  Individuals 

But  if  ten  men  be  carefully  selected,  and  given  adequate  train- 
ing, their  performance  will  differ  by  but  a  few  seconds,  so  that 
the  average  performance  will  gain  in  significance  as  the  figure 
which  adequately  sums  up  the  record.  This  may  be  illus- 
trated by  Figure  34. 


Average 
Fig.  34.    Record  of  the  Performance  of  Selected  Individuals 


THE  MEASUREMENT  OF  WAGE  FACTORS  231 

By  the  comparison  of  the  two  diagrams  it  can  be  seen  that  the 
performance  of  the  exceptionally  fast  man  is  much  less  signifi- 
cant in  the  second  case  than  in  the  first.  In  mixed  and 
untrained  ranks,  the  first-class  man  is  a  thoroughbred  among 
misfits.  In  the  hands  of  a  drive  management  he  may  be  made 
a  destructive  instrument  by  spurring  others  to  efforts  which 
are  dangerous  for  them,  because  of  their  lack  of  training  or 
aptitude.  But  if  the  standard  of  selection  is  that  each  man  must 
be  a  first-class  man  for  his  place,  the  influence  of  the  pace- 
maker at  once  disappears.  He  is  among  his  equals,  and  his 
lead  is  reduced  to  a  negligible  quantity;  if  not  negligible  in 
sport  where  but  one  is  victor,  and  the  record  is  the  chief  thing, 
at  least  negligible  in  economics,  where  the  aggregate  output  is 
the  important  factor.  To  an  intelligent  management  the 
significance  of  the  exceptional  man  is  not  at  all  with  reference 
to  pace,  but  entirely  with  reference  to  superiority  of  method. 
The  exceptional  man  as  a  pace-maker  is  a  destroyer;  but  as  a 
teacher  he  becomes  a  helpful  leader. 

Standardization  of  the  rate  of  performance.  —  When  the 
conditions  of  labor  have  been  standardized,  and  workmen  of 
adequate  native  powers  and  sufficient  training  have  been 
installed,  the  third  step  in  the  scientific  determination  of  the 
wage  rate  is  to  fix  the  proper  pace  or  rate  of  performance.  If 
we  have  to  do  with  distinct  units  of  work,  such  as  the  machin- 
ing of  a  casting,  the  rate  will  be  expressed  as  a  task  time;  but 
if  work  proceeds  without  distinct  subdivisions  into  tasks,  as 
in  calking  a  ship,  or  in  transcribing  dictation  onto  a  type- 
writer, the  rate  will  be  stated  in  terms  of  quantity  per  hour  or 
per  day,  as  350  feet  of  calking  per  da}^,  or  100  square  inches  of 
typewritten  work  per  hour. 

What  the  workman  knows.  —  Where  shall  information  as 
to  the  proper  rate  of  performance  be  obtained?  From  the 
workman,  who  has,  perhaps,  spent  ten  or  twenty  years  at  his 
trade?  The  suggestion  sounds  reasonable.  Let  us  see.  At 
the  Watertown  Arsenal,  when  scientific  methods  were  being 


232     ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

introduced,  the  time-study  expert  set  24  minutes  as  the  proper 
time  for  a  certain  job,  and  40  minutes  as  the  time  at  which  the 
bonus  should  begin.  There  was  a  great  protest  in  the  moulding 
room.  As  a  concession,  the  bonus  time  was  changed  to  50 
minutes,  or  the  average  time  the  moulders  had  been  taking  for  the 
job.  So  long  as  the  foundry-  gang  could  control  the  situation 
50  minutes,  quite  exactly,  was  always  taken  for  the  job.  But 
when,  at  length,  a  new  man  came  into  the  shop,  it  was  found 
that  20  minutes  was  ample  time  for  him.  Thereafter,  all  the 
moulders  did  the  job  in  20  minutes  without  difficulty.^  At  the 
Rock  Island  Arsenal,  Lieut  .-Col.  F.  E.  Hobbs  relates  the  case 
of  an  employee  who  fabricated  5  pieces  of  a  certain  article  in 
24  hours,  when  a  piece-rate  was  being  fixed.  Not  long  after- 
wards the  same  man  was  producing  5  pieces  in  16J  hours. 
Nevertheless,  when  a  proper  system  of  management  was 
estabhshed,  eight  different  employees  working  at  various  times 
on  the  same  article,  were  able  to  average  400  pieces  in  14 
hours.-  'Ma'].  D.  !M.  King,  of  the  same  Arsenal,  reports  the  case 
of  a  man  on  day  work  who  filed  from  15  to  17  pieces  per  day, 
but  who,  on  piece  work,  turned  out  regularly  from  45  to  47 
pieces  daily.  At  the  Mare  Island  Xa\y  Yard.  Mr.  H.  A. 
Evans,  U.  S.  Naval  Constructor,  found  the  calkers  doing  from 
80  to  100  feet  per  day.  After  a  piece-work  figure  was  set,  the 
men  were  able,  with  perfect  ease,  to  do  from  380  to  400  feet 
per  day.^ 

These  illustrations,  which  might  be  multiphed  indefinitely, 
show  how  Uttle  is  known  by  the  workman  as  to  the  possibihties 
of  industry.  An  unorganized  shop  has  as  many  opinions  as 
to  what  constitutes  a  fair  pace  as  there  are  workmen.  An 
organized  shop  has  one  opinion,  and  that  is  that  there  should 
be  sohdarity  of  action  in  defending  the  chosen  pace.  Mr. 
Taylor  has  said,  ''  It  is  the  rarest  possible  case  that  either  the 

1  Hearings  before  the  H.  of  R.  Sp.  Com.  on  The  Taylor  and  Other 
Systems  of  Shop  Management,  Washington.  D.  C,  1912.  Ill,  p.  1266. 
'  2  Ihid.,  II,  p.  S43.  '  Ibid.,  Ill,  p.  1S67. 


THE  MEASUREMENT  OF  WAGE  FACTORS  233 

management  or  the  men  know  what  a  really  first-class  man  is 
capable  of  doing  if  he  goes  at  it  with  the  best  implement,  with 
proper  appliances,  and  with  determination  and  a  will  to  do 
everything  that  he  can  do.  What  I  maintain,  and  feel  abso- 
lutely sm"e  of,  is  that  the  full  and  proper  solution  of  the  wages 
question  —  as  to  which  sj^stem  shall  be  emploj^ed,  and  the 
amount  of  compensation  to  be  paid  —  hes  in  a  study  of  how 
much  each  man  should  do,  or  could  do,  or  ought  to  do.  It  is 
this  stud}^,  this  accurate  study  of  how  long  he  ought  to  take  to 
do  a  job  of  work,  which  is  of  so  much  greater  importance  than 
the  adoption  of  any  one  system  of  paying  men  that  the  latter 
sinks  almost  out  of  sight,  or  ought  to  sink  out  of  sight.  I  wish 
to  repeat  that,  with  the  knowledge  of  how  long  a  job  should 
take,  even  the  day-work  plan  of  paying,  which  is  perhaps,  in 
many  cases,  the  least  satisfactory,  will  produce  much  larger  re- 
sults than  will  any  of  the  other  systems  without  this  knowledge." 
Time  study.  —  The  standard  method  of  determining  the 
proper  time  for  a  task  is  called  time  study.  The  first  step  in 
time  study  consists  in  the  accurate  measurement,  with  proper 
instruments  of  precision,  of  the  tunes  required  for  the  perform- 
ance of  the  elementaiy  hmnan  movements  of  which  any  job  is 
composed.  Tune  study  does  not  concern  itself  with  machine 
speeds;  those  are  controlled  by  engineering  calculations.  It 
has  to  do  with  human  movements,  or  handling  times.  Nor 
does  it  concern  itself  at  first  with  the  total  elapsed  time  of  any 
completed  job.  Although  the  ulthnate  object  is  a  figure 
representing  the  proper  total  time  for  a  task,  the  method  of 
getting  it  is  not  to  record  the  beginning  and  ending  times  of  a 
series  of  acts,  as  a  judge  at  a  race-track  would  do.  If  we 
measure  a  series  en  bloc  we  get  a  time  which  cannot  be  compared 
with  that  of  any  other  series  unless  that  series  is  composed  of 
identical  units.  If  there  are  differences  between  two  series, 
and  we  attempt  to  allow  for  them,  we  find  ourselves  at  once 
considering  component  elements,  and  trying  to  calculate  the 
effect  of  the  presence  or  absence  of  certain  elements.     But 


23-i      ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

we  can  only  successfully  allow  for  differences  in  elements  after 
having  studied  the  times  of  elements.  Tasks  are  infinite 
in  variety,  but  the  elementaiy  movements  of  which  they  are 
composed  are  comparatively  few  in  number.  If  we  attempt 
the  dii-ect  measm*ement  of  complete  tasks  our  judgment  will 
be  lost  in  infinite  variety;  but  if  we  observe  the  times  of  the 
elements,  the  small  number  of  t^'pical  movements  makes  it 
possible  to  attain  soimd  judgment.  It  is  because  workmen 
measure  only  total  elapsed  time  that,  even  though  they  may 
have  been  engaged  for  a  lifetime  upon  a  certain  class  of  vrork, 
they  rarely  arrive  at  an  inteUigent  knowledge  of  how  long  a 
task  should  take  under  altered  conditions.  The  time-study 
expert,  on  the  other  hand,  can  ciuickly  analyze  work  which  is 
unfamihar  to  him,  just  as  a  chemist  can  analyze  a  substance 
which  he  has  never  seen  before.  In  this  difi'erence  of  power  is 
illustrated  the  importance  of  the  fii'st  step  m  the  scientific 
method,  which  was  described  in  Chapter  I.^ 

A  sufficient  series  of  measurements  of  each  elementaiy  oper- 
ation must  be  taken  to  make  possible  a  somid  opinion  as  to 
what  the  best  time  is.  On  this  point,  Mr.  Dwight  V.  Merrick, 
who  is  an  experienced  time-study  expert,  says,  ''If  the  elemen- 
tary operations  require  a  reasonably  long  time  and  the  work 
is  being  done  at  a  unifoiin  rate,  a  few  complete  obsers'ations 
will  suffice.  On  the  other  hand,  if  the  elementarv'  operations 
are  veri.'  short  and  from  anj*  cause  successive  pieces  are  not 
produced  at  a  uniform  rate,  a  great  many  obser^'ations  may  be 
required. - 

An  observation  sheet  containing  elementary-  times,  the 
miniuimn  task  time,  and  the  standard  or  bonus  time,  is  here 
reproduced. 

Composition  of  the  minimum  time.  —  Giving  attention  to 
the  composition  of  the  obser^'ation  sheet,  we  find  that  on  the 

1  Pages  5  and  6. 

-  Making  Instruction  Cards  from  Time  Studies,  Iron  Age,  March  11, 
1915,  p.  561. 


THE  MEASUREMENT  OF  WAGE  FACTORS 
Wage  Factors 


235 


Observer's  name 


OBSERVATION  SHEET 

.  .      Workman's  name Piece  . 


1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 


Detail  of  Observation 


Put  board  in  place 

Place  pattern  on  board 

Place  drag  in  position 

Sprinkle  parting  on  pattern 

Shovel  on  facing  sand 

Ram 

Fill  drag  with  backing  sand 

Ram 

Strike  off 

Place  bottom  board 

Roll  drag  over 

Remove  board 

Sprinkle  parting  on  pattern 

Place  cope  in  position 

Place  gates 

Shovel  in  facing  sand 

Ram 

Fill  cope  with  backing  sand 

Ram 

Strike  off 

Draw  gate 

Remove  cope 

Draw  pattern 

Patch  mould 

Open  gate 

Close  mould 

Remove  to  floor  and  remove  flask 


Individual  Times 

(In  minutes  and  hundredths) 

1 

2 

3 

4 

5 

.04 

.03 

.05 

.05 

.06 

.03 

.05 

.03 

.04 

.05 

.10 

.08 

.11 

.14 

.12 

.04 

.07 

.04 

.03 

.05 

.03 

.02 

.03 

.04 

.03 

.20 

.14 

.22 

.21 

.19 

.07 

.13 

.05 

.07 

.08 

.29 

.26 

.24 

.24 

.17 

.13 

.15 

.15 

.08 

.08 

.08 

.07 

.09 

.09 

.13 

.09 

.12 

.11 

.12 

.16 

.03 

.02 

.03 

.03 

.04 

.09 

.06 

.03 

.08 

.09 

.08 

.08 

.09 

.12 

.13 

.08 

.10 

.13 

.11 

.09 

.07 

.08 

.02 

.09 

.10 

.18 

.17 

.18 

.18 

.19 

.12 

.12 

.14 

.13 

.10 

.30 

.25 

.25 

.20 

.25 

.12 

.18 

.20 

.20 

.17 

.10 

.10 

.15 

.16 

.11 

.15 

.15 

.06 

.09 

.10 

.60 

.58 

.63 

.62 

.65 

.30 

.29 

.29 

.30 

.28 

.20 

.20 

.20 

.21 

.23 

.12 

.15 

.12 

.11 

.12 

.18 

.25 

.29 

.28 

.30 

Mini- 
mum 
times 


.03 
.03 
.08 
.03 
.02 
.14 
.05 
.17 
.08 
.07 
.09 
.02 
.03 
.08 
.08 
.02 
.14 
.10 
.20 
.12 
.10 
.06 
.58 
.28 
.20 
.11 
.18 


Total  minimum  time 

Allowance  (60  per  cent) 

Time  it  should  take  to  set  one  mould 

To  earn  premium,  work  must  be  done  in  time  and  |  or 


3.09 
1.85 
4.94 
8.23 


Sample  of  a  Time  Study  Sheet 


236      ADMINISTRATIOX  OF  INDUSTRIAL  ENTERPRISES 

different  occasions  when  the  workman  did  the  task  he  took  for 
the  operation  entitled  ''Put  board  in  place"  the  following 
fractions  of  a  minute,  .04,  .03,  .05,  .05,  .06,  respectively.  The 
record  chosen  for  the  minimmn  task  time  is  the  lowest  one  or 
.03.  In  Hne  2,  likewise,  we  find  that  the  records  are  .03,  .05, 
.03,  .04,  .05,  and  that  the  element  taken  for  the  minimum  task 
time  is  .03.  These  minimum  thnes  for  each  element  are  added 
together  to  form  the  minimum  task  time  for  the  job  as  a  whole. 

It  may  be  asked  why  the  lowest  record  is  taken  rather  than 
some  other  record.  For  any  series  of  measurements  there  are 
several  figures,  any  one  of  which  may  be  chosen  to  represent 
the  series.  We  can  take  the  median  time,  or  the  time  which 
will  divide  the  series  into  two  parts,  a  higher  and  a  lower,  each 
containing  an  equal  nmnber  of  observations.  And  we  might 
justify  ourselves  in  this  on  the  ground  that  each  individual 
case  makes  its  contribution  toward  the  discovery  of  the  proper 
time.  Or  we  can  take  the  mode  of  the  series,  that  is  to  say, 
the  record  which  appears  most  frequently;  and  do  so  on  the 
theory  that  the  record  found  most  often  represents  the  normal 
equihbrium  into  which  the  usual,  permanent,  and  legitimate 
factors  of  the  case  tend  to  fall.  Still  another  possible  choice 
is  the  average  time,  or  the  time  which  will  be  given  if  the  sum 
of  tunes  of  the  series  be  divided  by  the  number  of  the  observa- 
tions. Such  a  figure  is  more  complex  than  the  others  as  it 
gives  weight  to  the  number  of  instances,  and  also  to  the  quanti- 
tative variation. 

The  time  which  is  usually  chosen  by  efficiency  experts  is 
the  minimum  time.  This  figure  is  assumed  to  represent  a 
capable  man  working  under  the  best  conditions;  a  state  of 
things  proper  to  hold  up  as  the  ideal.  By  taking  the  lowest 
records  a  great  advantage  in  method  is  attained,  namely,  that 
one  question  is  taken  up  for  decision  at  a  time.  The  lowest 
time  is  assumed  to  be  pure,  net  performance;  as  simple  and 
homogeneous  a  thing  as  is  available,  and  a  measurement  as 
free  as  possible  from    indefinite  elements    representing  rest; 


THE  MEASUREMENT  OF  WAGE  FACTORS  237 

incompetency,  unavoidable  interruptions,  etc.  If  we  begin 
with  such  a  time,  we  can  then,  in  proper  turn,  consider  the 
making  of  allowance  for  all  the  retarding  causes  which  prevent 
the  attainment  of  the  minimum. 

Allowance.  —  Allowance  is  added  to  the  minimum  task 
time  to  produce  the  standard  or  proper  task  time.  In  the 
allowance  it  is  intended  to  take  care  of  rest  periods,  and  the 
personal  requirements  of  the  employee,  unavoidable  variations 
in  the  quahty  of  materials  or  in  the  condition  of  equipment, 
time  lost  in  changing  tools,  time  required  to  change  from  one 
type  of  work  process  to  another,  the  moving  of  raw  and  com- 
pleted stock  (if  such  work  is  not  done  for  the  operative  by 
move  men),  the  lower  performance  of  the  later  hours  of  the 
day,  and  the  fact  that  all  the  men  who  will  be  retained  as  satis- 
factory for  a  job  are  not  equal  to  the  best  man.  In  short, 
allowance  is  intended  to  cover  all  immeasurable  and  unstand- 
ardizable  elements  of  performance  which  influence  the  time. 
It  is  a  lump  sum  to  cover  all  time-influencing  factors  which  it 
is  not  yet  possible  to  submit  to  scientific  measurement.  It  is, 
therefore,  the  most  difficult  item  to  determine  in  the  whole 
process  of  time  setting. 

The  amount  of  the  allowance  should  differ  with  the  nature 
of  the  work,  with  the  rest  intervals  necessary,  and  with  the 
degree  of  control  attained  over  power,  equipment,  tools,  etc. 
At  the  Tabor  Manufacturing  Company  in  Philadelphia,  the 
allowance  on  handhng  time  varies  from  30  to  80  per  cent. 
Mr.  Taylor,  who  aimed  at  high  performance,  and  desired  only 
the  best  men,  and  who  determined  task  times  with  great  care, 
found  an  allowance  of  from  20  to  27  per  cent  satisfactory. 

Time  study  and  soldiering.  —  By  the  use  of  motion  study 
and  time  study  soldiering  can  be  detected  and  measured. 
Soldiering  is  composed  either  of  false  motions,  or  of  retards 
on  certain  processes,  or  of  idle  periods  inserted  at  definite 
points,  or  of  a  more  or  less  uniform  slowing  down  of  all  move- 
ments.    False   motions    can    be    detected    by   motion    study, 


238     ADMIXISTRATIOX  OF  IXDUSTRIAL  ENTERPRISES 

which  examines  the  purpose  and  value  of  each  element  in  the 
process.  Idle  periods,  and  retards  located  at  specific  points, 
are  revealed  by  a  comparison  of  the  times  taken  by  the  same 
operator  on  different  occasions,  since  volimtary  retards  can 
seldom  be  inserted  twice  alike.  Attempts  at  uniform  retarda- 
tion are  at  once  revealed  by  the  comparison  of  the  elementary 
times  of  different  men. 

The  records  of  motion  study  and  time  study.  —  The  statistics 
of  elementary  studies  form  an  objective  and  permanent  record 
available  for  reference  and  appeal.  As  Mr.  Hollis  Godfrey  has 
said,  ''When  a  task  has  been  studied,  and  set  down,  there  is  a 
written  statement  of  fact,  scientifically  determiued,  which  is 
fair,  both  to  employer  and  to  employee,  if  it  has  been  scien- 
tifically done.  Such  a  recorded  task  senses  as  a  basis  for  fair 
deahng  on  both  sides.  In  an  unknown  and  unrecorded  task 
you  leave  altogether  too  much  power  in  the  hands  of  one  party 
or  the  other,  commonly  in  the  hands  of  the  employer.  With 
a  scientifically  studied  and  deteiTuined  task,  which  has  been 
recorded,  both  sides  meet  on  an  ecjual  plane."  ^  When  to 
the  specifications  of  the  task  are  added  records  of  the  individual 
performance  of  the  workman,  there  is  produced  something  to 
which  the  employee  can  refer  in  appeal  against  arbitrary-  dis- 
charge, or  the  spleen  of  any  indi\'idual  official.  In  case  of  a 
shut-down,  a  capable  man  has,  in  such  records,  specific  proof, 
accurate  and  convincing,  as  to  his  capacity,  and  as  to  the 
result  he  can  guarantee  to  another  employer. 

Opposition  to  time  study.  —  The  making  of  time  studies  has 
been  ^-igorously  opposed  by  the  representatives  of  organized 
labor.  It  is  m-ged  that  the  only  man  who  is  in  a  position  to 
say  how  long  a  job  should  take,  or  what  are  the  necessarv'  or 
unnecessarv'  elements  of  it,  is  the  man  who  has  gained  experi- 
ence by  doing  the  job.  This  statement  appears  to  carr^'  force, 
for  everv'  one  reahzes  that  expertness  grows  out  of  first-hand 

^  Hearings  before  the  H.  of  R.  Sp.  Com.  on  the  Taylor  and  Other 
Systems  of  Shop  Management,  Washington,  D.  C,  1912,  III,  p.  1841. 


THE  MEASUREMENT  OF  WAGE  FACTORS  239 

contact  with  the  conditions  of  one's  problem.  But  there  are 
here  two  kinds  of  experience.  The  operative  is  engaged  in 
performance :  time  setting  is  an  entirely  different  matter,  and 
one  possessing  principles  and  a  technique  of  its  own  of  suffi- 
cient distinctness  and  complexity  to  demand  the  attention  of  an 
expert.  The  objection  is  an  instance  of  the  fallacy  of  "ambigu- 
ous middle,"  in  vohdng  two  meanings  of  the  word  "experience.'' 
It  is,  in  effect,  the  assertion  that  the  man  engaged  in  routine 
performance  is  equipped  by  that  experience  for  the  adminis- 
trative functions  which  control  that  performance.  If  we  admit 
such  an  idea  as  this  we  should  have  to  argue  that  the  farmer 
who  has  "experience  "  with  the  soil  in  plowing  it  imderstands 
soil  analysis  better  than  the  soil  chemist,  that  the  mechanic 
who  has  "experience  "  with  a  casting  by  machining  it  laiows 
the  problem  of  design  of  the  mechanism  of  which  the  castmg 
is  a  part  better  than  the  engineer,  that  the  man  who  "experi- 
ences "  pain  understands  the  meaning  of  his  s>Tiiptoms  better 
than  the  physician. 

A  second  objection  is  that  when  a  time-study  expert  stands 
by  an  operative  with  a  stop-watch,  and  records  his  every  move- 
ment or  pause,  the  process  is  humihating  —  in  fact  a  kind  of 
slavery  —  and  is  a  proceeding  which  implies  distrust.  By 
way  of  explanation,  it  should  be  said  that,  after  a  sufficient 
record  of  elementary  times  has  been  made  in  a  plant,  there  is 
ver}^  little  time  study  required,  because  total  times  are  com- 
piled from  the  records  of  the  elements.  If  a  new  job  appears 
the  only  time  study  required  is  with  reference  to  the  new  ele- 
ments which  it  may  contain:  no  attention  needs  to  be  given 
to  the  elements  which  are  common  to  other  jobs  and  which 
have  been  already  measured. 

As  for  the  sense  of  humihation,  it  must  be  said  that  this  is 
something  depending  entirely  upon  the  purpose  or  ultimate 
aim,  rather  than  upon  the  process.  The  college  student  is 
not  humihated  by  the  questions  of  the  instructor;  the  injured 
man  is  not  humihated  by  the  operations  of  the  surgeon.     And 


240      ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

this  is  so  because  the  piu'pose  in  each  of  these  cases  is  a  benef- 
icent one.  Humiliation  springs  from  reduction  of  conrUtion, 
or  the  manifestation  of  disesteem;  but  time  study  aims  at 
improvement  of  process,  higher  wages,  and  general  weKare. 
It  proclaims  that  a  new  fine  art  exists  in  each  of  the  crafts; 
and  affirms  the  worker's  abihty  to  achieve  a  better  record.  If 
the  purpose  of  a  management  is  to  share  the  results  of  greater 
efficiency  in  a  just  manner  with  its  men.  humiliation  should 
vanish  as  this  purpose  becomes  understood  in  the  ranks.  If 
the  pm-pose  is  not  fair,  the  fault  hes,  not  in  the  process,  but  in 
the  ultimate  aim. 

A  third  objection  is  that  time  study  puts  a  strain  upon  opera- 
tives, and  produces  nervousness.  This  is  partly  answered  by 
what  has  gone  before.  In  so  far  as  there  is  ner\'ous  strain  in 
a  force  of  men  which  imderstands  and  approves  the  purpose  of 
attaining  higher  efficiency,  it  may  either  signify  that  the  new 
regime  is  not  being  installed  tactfully  and  inteUigently,  or 
that  certain  indi\'idual  workmen  are  h^-persensitive.  It  must 
be  remembered,  however,  that  stress  and  effort  are  an  ine\4table 
price  exacted  by  natiu^e  for  aH  high  excellence.  This  is  not 
something  to  complain  of,  if  the  achievement  is  worth  while; 
but  it  is  something  for  an  administration  to  deal  with  accord- 
ing to  the  laws  of  fatigue. 

There  is  ground  for  suspicion  that  the  objection  to  time  study 
is  merely  a  matter  of  tactics,  and  that  the  true  ground  of  opposi- 
tion of  organized  labor  to  scientific  management  is  its  ahn  of 
pa\TQg  men  according  to  incU\'idual  performance.  This  prin- 
ciple of  remuneration  is  in  opposition  to  the  union  procedure 
of  estabUshing  a  single  rate  of  wages  for  a  trade  in  a  locahty. 
The  pohcy  of  uniting  on  a  single  rate  has  advantages  as  a 
campaign  measm'e,  for  it  sinks  incU\'idual  interests  and  promotes 
sohdarity  of  action.  It  has  the  misfortime.  however,  to  oppose 
the  introduction  of  scientific  agencies  for  measuring  the  value 
of  labor,  to  oppose  the  process  of  differentiation  and  speciahza- 
tion  which  is  an  element  in  all  progress,  and  to  repudiate  the 


THE  MEASUREMENT  OF  WAGE  FACTORS  241 

principle  that  each  man  should  be  rewarded  according  to  his 
performance,  —  a  principle  everywhere  dominant  in  nature 
and  one  to  which  all  the  professions  and  occupations  are  subject, 
except  organized  labor  and  monopolistic  management,  —  a 
principle  which  is  especially  vital  in  a  country  depending  upon 
a  regime  of  individual  initiative. 

BIBLIOGRAPHY 
See  the  close  of  Ch.  XIV. 


CHAPTER  XIII 
THE  OLDER  WAGE  SYSTEMS 

Day  Wages,  Piece  Rates,  Profit  Sharing,  and  the 

Sliding  Scale 

From  the  point  of  view  of  modern  methods  of  administra- 
tion, we  may  divide  the  systems  used  for  calculating  wages 
into  three  classes :  (a)  those  which  antedate  the  modern  move- 
ment, including  the  day  w^age,  the  piece  rate,  profit  sharing, 
and  the  sUding  scale;  (b)  the  bonus  systems  which  do  not 
require  standardized  conditions  nor  scientific  time  setting, 
represented  by  the  Halsey  system  in  this  country  and  the 
Rowan  system  in  Great  Britain;  (c)  those  bonus  systems  in 
which  thoroughly  controlled  conditions  and  accurate  time 
setting  is  a  cardinal  point,  embracing  the  Taylor  differential 
piece  rate,  the  Gantt  task  and  bonus  system,  and  the  Emerson 
efficiency  wage. 

The  day  rate.  —  The  oldest  of  the  wage  systems  is  the  one 
which  offers  the  workman  a  given  sum  for  a  fixed  period  of 
his  time.  The  rate  may  be  quoted  as  so  much  per  hour,  day, 
or  week.  The  limits  of  a  given  rate  are,  at  the  bottom,  the 
point  of  inefficiency  which  brings  discharge,  and  at  the  top, 
the  point  of  excellence  which  is  rewarded  by  promotion.  Within 
these  limits,  the  day  rate  pays  exclusively  for  the  workman's 
time,  taking  no  account  of  the  quality  or  quantity  of  work 
done.  So  long,  therefore,  as  the  workman  remains  safely 
within  the  limits,  he  is  in  a  passive  state,  except  as  he  may  be 
energized  by  the  dictates  of  conscience,  or  by  loyalty  to  his 
employer,  or  by  the  praise  or  blame  of  the  foreman.     On  the 

242 


THE  OLDER  WAGE  SYSTEMS 


243 


other  hand,  the  employer  is  awakened  to  activity  by  this  system 
of  payment.  Any  additional  productive  effort  which  he  is 
able  to  secure  from  his  force  by  means  of  the  careful  selection 
of  individuals,  the  division  of  labor,  the  introducton  of  machin- 
ery, or  by  drive  tactics  of  foremanizing,  is  clear  gain  to  him. 
Any  slowing  down  of  the  pace  creates  a  loss  which  he  alone 
must  bear. 

The  chart  of  the  day  rate.  —  In  designing  a  chart  to  illus- 
trate the  effect  of  an  increase  or  decrease  in  the  rate  of  produc- 


Fig.  35.    Wages  and  Costs  under  the  Day  Rate 
Wages  per  day.     Direct-labor  cost  per  job  or  per  piece. 


tion  imder  the  various  wage  systems,  it  is  to  be  remembered 
that  there  are  two  things  of  primary  importance.  The  chief 
stimulus  which  moves  the  employee  to  exert  himself  is  the 
amount  of  wages  it  is  possible  to  earn  in  a  day.  The  chief 
object  of  the  employer  is  to  lessen  the  direct  labor  cost  per  job 
or  per  unit  of  product.  The  series  of  charts  here  introduced 
illustrate  for  each  wage  system  the  effect  of  the  accomplish- 
ment of  the  task  in  different  lengths  of  time  upon  these  two 
things  —  the  total  earnings  of  the  day,  and  the  unit  cost  for 
direct  labor. 

Advantages.  —  I.  The  day-wage  system  adjusts  itself  fairly 
well  to  the  realities  of  the  financial  position  of  the  employee. 
Workmen  who,  by  reason  of  the  trade  they  follow  or  the  type 
of  work  they  perform,  find  themselves  in  a  given  social  class, 


244      ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

tend  to  live  in  a  similar  way,  and  to  incur  like  expenditures  as 
consumers.  Within  any  particular  group  having  a  common 
standard  of  life  there  exist  considerable  differences  of  individual 
producing  capacity;  but  in  so  far  as  the  indiA-idual  workers  or 
their  families  are  contented  "vsith  the  class  they  are  in,  they 
will  be  more  anxious  that  the  wage  should  be  sufficient  to 
keep  them  in  the  class,  than  that  it  should  exactly  measure 
individual  productive  effort.  Where  cUscontent  becomes  prev- 
alent, it  is  likely  to  be  the  restilt  of  the  work  of  organizations 
whose  scope  conforms  to  some  one  of  the  di\isions  of  the  wage- 
earning  class,  and  to  consist  in  the  con\'iction  that  wages  should 
be  raised  for  the  class  generally,  rather  than  that  talented 
indi\'iduals  in  the  class  should  be  given  remuneration  above 
the  rest.  In  so  far,  therefore,  as  the  wage  earner  is  content 
to  retain  the  standard  of  life  of  his  class,  he  is  satisfied  with 
wages  which  meet  the  requirements  of  this  class  standard, 
regardless,  within  considerable  limits,  of  the  energy-  and  abihty 
he  may  have  to  put  into  his  work.  So  long  as  there  is  no 
question  of  change  of  class,  expenses  appear  to  be  chiefly  a 
fimction  of  time  —  such  and  such  bills  to  be  met  each  week  or 
month.  The  wages  to  cover  these  expenses  "vstII  then  appear, 
likewise,  to  be  chiefly  a  fimction  of  time  —  so  much  per  day  or 
per  week. 

II.  The  day  rate  favors  careful  work,  for  it  permits  the 
workman  to  express  his  ideals  of  craftsmanship  and  his  pleasure 
in  a  perfect  product,  without  loss  to  himseh.  The  man  who 
builds  a  house  by  the  day,  instead  of  by  the  contract,  never 
fails  to  mention  the  fact  when  he  ofi'ers  the  house  for  sale. 
Even  excessive  care  as  to  the  quahty  of  work  will  not  be  dis- 
tasteful to  the  day  worker  and  his  companions,  for  it  will  be 
recognized  that  this  is  one  form  of  ''nursing  the  job." 

III.  The  trade  unions  favor  the  day  rate,  because  it  creates 
a  sohdarity  of  interest  within  each  wage  group.  Kxceptional 
men  endeavor  to  raise  the  standard  wage  as  the  only  means  of 
impro\T.ng  their  own  condition.     The  average  man  is  satisfied 


THE  OLDER  WAGE  SYSTEMS  245 

with  a  wage  which  is  fair  for  him.  Those  who  are  below  the 
average  give  their  ardent  support  to  the  standard,  for  it  is  a 
means  of  rewarding  them  bej^ond  their  desert. 

IV.  The  calculations  havolved  in  this  method  of  pa>^g  are 
simple.  The  pajToll  can  be  made  up,  class  by  class,  directly 
from  the  attendance  record. 

V.  If  it  is  desired  to  make  day  wages  respond  with  a  reason- 
able degree  of  flexibihty  to  individual  performance,  it  can  be 
done  by  breaking  up  the  traditional  craft  groups  mto  a  suffi- 
cient number  of  wage  classes,  each  class  being  given  a  different 
rate  of  pa5^  There  will  thus  be  created  a  promotion  and  demo- 
tion scale,  up  and  down  which  men  may  be  moved  according 
to  their  value. 

VI.  By  dividing  each  kind  of  work  into  short  and  clear-cut 
tasks  production  may  be  stimulated,  and  even,  perhaps,  stand- 
ardized for  a  time,  if  the  performance  aimed  at  is  commen- 
surate with  the  wages  paid.  And  this  will  follow  because  the 
time  of  the  completion  of  a  task  is  an  advantageous  juncture  for 
raising  the  question  of  efficiency,  so  that,  if  such  junctures  are 
made  clear  and  frequent,  thoughts  of  promotion  or  discharge 
and  of  self-testing  will  be  potent  m  the  employee's  mind. 

Disadvantages.  —  I.  The  principal  objection  to  the  day- 
rate  system  is  that  it  represses  the  superior  man.  Mr.  F.  W. 
Taylor  has  said,  ''The  effect  of  this  system  is  distinctly 
demoraUzing  and  levelling;  even  the  ambitious  men  soon  con- 
clude that  since  there  is  no  profit  to  them  in  working  hard,  the 
best  thing  for  them  to  do  is  to  work  just  as  Httle  as  they  can 
and  still  keep  their  position.  And  under  these  conditions  the 
invariable  tendency  is  to  drag  them  all  down  even  below  the 
level  of  the  medium."  ^  Thus  latent  talent  tends  either  to 
hide  itself,  and  so  not  secure  the  necessary  training  and  author- 
ity to  render  greater  service,  or  else  it  finds  vent  in  antagonistic 
forms  of  activity. 

1  F.  W.  Taylor,  A  Piece-Rate  System,  Trans,  of  Am.  Soc.  of  Mech. 
Eng.,  June  1895,  Vol.  16,  No.  647,  p.  861. 


246      ADMIXISTRATIOX  OF  IXDUSTRIAL   EXTERPRISES 

II.  It  is,  of  course,  no  argument  against  the  day-wage  sys- 
tem to  say  that  it  forces  the  best  men  into  the  uidons:  for  the 
better  the  leaders  of  the  labor  organizations  are,  the  better 
the  pohcies  will  be.  But  a  s^-stem  which  produces  in  excep>- 
tional  men  a  sense  of  personal  injure-  is  sowing  dragon's  teeth. 
If  the  employer's  wage  pohcy  teaches  the  men  that  adminis- 
trative necessity  requii'es  the  underpa^-ing  of  exceptional  men 
for  the  sake  of  the  convenience  of  applying  a  standard  wage, 
it  prepares  the  way  for  the  union  argument  that  the  strategy'  of 
the  labor  campaign  necessitates  apphing  the  standai'd  wage 
to  men  who  are  below  the  average. 

III.  The  flexibihty  which  is  to  be  obtained  under  the  day- 
rate  system  by  the  creation  of  nmnerous  wage  classes  fpoint 
V  above)  is  more  theoretical  than  practical.  Speaking  from  a 
long  practical  experience,  ^Ir.  H.  L.  Gantt  says,  "The  employer 
usually  pays  but  one  rate  of  wages  to  one  class  of  workmen, 
because,  as  a  rule,  he  has  no  means  of  gauging  the  amount 
of  work  each  man  does.  It  is  exceedingly  difficult  to  keep  an 
exact  record  of  what  each  of  a  number  of  men  does  each  day; 
and  even  if  he  had  such  records,  the  difficulty  of  comparing 
them  would  be  veiy  great,  unless  the  work  done  by  each  man 
was  of  the  same  nature,  and  done  under  the  same  conditions. 
The  result  is  that  he  keeps  no  indi^-idual  records,  but  usually 
treats  all  workmen  of  a  class  as  equals,  and  pays  them  the 
same  wage.  There  may  be  20  per  cent  who  are  veiy  much 
more  efficient  than  the  rest,  but  he  has  no  way  of  distinguishing 
them  from  the  others  with  any  degree  of  certainty:  hence  he 
dechnes  to  increase  any  wages,  or  makes  the  difference  in 
wages  insignificant  as  compared  to  the  difference  in  efficiency."  ^ 

l\.  The  standardization  of  performance  (pomt  Vl  above) 
cannot  be  made  seK-enforcmg  when  the  day  rate  is  used. 
The  only  vis  a  tergo  to  keep  the  men  above  ordinary'  perform- 
ance is  the  energy-  and  attention  of  the  management.  The 
essence  of  this  defect,  in  so  far  as  the  wage  plan  is  concerned, 
1  Work,  Wages,  and  Profits,  X.  Y.,  1910.  p.  52. 


THE  OLDER  WAGE  SYSTEMS  247 

is  the  lack  of  an  adequately  graduated  scale  of  rewards  and 
penalties  suitable  for  creating  a  smoothly  operating  adjust- 
ment between  effort  and  reward.  Such  rewards  and  penalties 
as  exist  are  too  extreme  for  frequent  application.  Promotion 
is  looked  upon  by  the  employer  as  a  more  or  less  permanent 
commitment  to  higher  wages.  Demotion  is  more  disgrace 
than  most  workmen  will  endure,  especially  if  it  involves  drop- 
ping a  man  out  of  a  class  which  is  recognized  as  such  among 
the  operatives.     Discharge  is  expensive  and  demoralizing. 

V.  Since  the  pace  at  which  the  management  can  drive  the 
men  is  a  variable  one,  the  wages  become  an  uncertain  element 
of  cost. 

Piece  rates.  —  The  second  of  the  long-standing  plans  of 
paying  labor  is  to  set  a  price  upon  a  job  or  a  unit  of  product, 
and  pay  that  sum  regardless  (within  promotion  and  demotion 
limits)  of  the  time  taken  to  accomplish  the  work.  As  piece 
rates  have  originated  in  the  majority  of  cases  in  a  process  of 
changing  over  from  day  rates,  it  has  been  natural,  in  setting 
them,  to  take  into  account  the  previous  day-wage  standards, 
and  the  previous  rates  of  performance.  In  most  cases  rates 
have  been  fixed  at  such  a  point  that  an  average  performance 
would  yield  the  current  wages  of  the  trade.  Even  with  a 
standard  as  low  as  this,  the  employer  has  been  ensured  a 
saving,  because  workmen  who  are  below  the  average  in  output 
are  paid  less  than  the  previous  day  wage.  In  some  cases  the 
rates  have  been  based  upon  the  idea  of  a  ''fair"  or  a  ''good 
honest  "  day's  work,  and  the  time  of  a  single  selected  man,  or 
the  average  time  of  a  number  of  selected  men,  has  been  taken 
to  represent  this  conception.  There  is  still  in  this  standard 
an  indirect  recognition  of  the  current  day  wage,  and  of  the 
prevailing  pace  of  working.  A  piece  rate  must  rest  upon  a 
judgment  as  to  proper  working  times  and  proper  daily  earnings. 
The  straight  piece-work  system  provides,  however,  no  regular 
and  normal  means  of  revising  either  of  these  judgments,  and 
so  provides  no  normal  method  of  changing  the  rate. 


248     ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

Under  piece  work  the  emploj^ee  makes  all  the  gain  or  loss 
of  his  own  time.  If  he  shortens  the  time  used,  or  if  any 
improvement  introduced  b}^  the  employer  shortens  the  time, 


Fig.  36.     Wages  and  Costs  uxder  Piece  Rates 

Wages  per  day. 

Direct-labor  costs  per  piece  or  job. 

A  =  Standard  time  8  hours. 

B  =  Standard  time  6  hours. 

C  =  Standard  time  4  hours. 


he  receives  no  less  for  the  job  finished,  and  he  gains  time  in 
which  to  make  extra  earnings  at  the  same  rate.  If  he  takes  a 
long  period,  his  remuneration  may  fall  below  da}^  wages  without 


THE  OLDER  WAGE  SYSTEMS  249 

check.  By  this  the  workman  is  put  under  responsibihty,  and 
stimulated  to  take  the  initiative.  He  is  aroused  to  demand 
materials  free  from  defect.  He  becomes  impatient  with  the 
delays  of  service  departments,  and  outspoken  in  denunciation 
of  breakdowns.  There  is  thus  a  tendency  for  managerial 
duties  to  pass  over  from  the  employer  to  the  employee,  and 
for  shop  administration  to  drift  along  in  the  wake  of  the  force. 
The  extra  earnings  made  by  men  under  the  piece-rate  system 
may,  therefore,  be  looked  upon  as  partly  the  addition  of  the 
wages  of  management  to  the  wages  of  labor. 

One  of  the  factors  of  unit  cost  not  shown  in  Figure  36  requires 
a  word  of  explanation.  While  the  employee  makes  all  the 
gain  or  loss  of  his  own  time,  the  employer  gains  by  rapid  per- 
formance from  the  fact  that  the  factory  burden  to  be  charged 
to  each  piece  or  job  is  decreased.  On  the  basis  of  cost  and 
capitahzation  data  of  the  Census  of  1910,  with  the  addition 
of  certain  reasonable  assumptions,^  it  may  be  said  that  unit 
manufacturing  costs  will  decline  under  piece  work  approxi- 
mately as  follows: 

Time  taken,  8  hours  (standard) Percentage  of 

ii  a  r>  (I 


C( 

n 

4 

(( 

(I 

2 

u 

il 

1  hour 

sen 

tage  of  cost,  100. 

a 

"     "      95 

11 

"     ''      90 

le 

"     "      85 

(( 

"     "     82.5 

Employers  favor  piece  rates  where  soldiering  is  difficult  to 
detect,  as  in  moulding;  where  speed  is  unusually  important,  as 
in  railroad  repair  shops;  where  work  is  done  away  from  the 
employer's  place  of  business,  as  among  the  glove  makers  of 

^  Invested  capital  to  yield  8  per  cent;  salaries  to  be  increased  at  6  hours 
by  5  per  cent,  at  4  hours  by  10  per  cent,  at  2  hours  by  20  per  cent, 
and  at  1  hour  by  25  per  cent;  depreciation  on  buildings  3  per  cent;  depre- 
ciation on  machinery,  tools,  and  equipment  to  be  at  8  hours  5  per  cent,  at 
6  hours  6  per  cent,  at  4  hours  7.5  per  cent,  at  2  hours  9  per  cent,  and  at 
1  hour  10  per  cent. 


250      ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

Gloversville,  X.  Y. ;  and  where  the  distinctness  of  tasks  favors 
the  calculation  of  a  job  price,  as  in  the  collar  factories  of  Troy, 
N.  Y..  and  the  hat  factories  of  Danbury,  Conn. 

Advantages.  —  I.  The  chief  advantage  of  this  system  is  that 
the  reserve  productive  power  of  those  persons  capable  of  better 
than  the  average  performance  is  given  a  market.  An  outlet 
is  provided  for  it,  and  it  becomes  free  to  assert  itseK  to  the 
advantage  of  the  possessor.  If  the  daj'  wage  acconmiodates 
itself  to  the  requirements  of  those  emploj^ees  who  are  satis- 
fied with  their  standard  of  Hfe  and  their  status  generally,  the 
piece-rate  system  attracts  those  who  are  dissatisfied  and  wish 
to  apply  then  energies  to  raise  themselves  into  a  higher  eco- 
nomic class.  As  the  talented  draw  ahead  of  the  average  under 
this  system,  emulation  permeates  down  the  line  and  awakens 
the  energies  of  all.  Xot  only  is  output  mcreased,  but  methods 
are  overhauled,  for  the  thought  of  the  worker  is  set  loose  as 
well  as  his  hand.  The  U.  S.  Bureau  of  Labor  has  estimated 
the  usual  increase  in  production,  when  piece  rates  are  intro- 
duced, at  25  per  cent.^ 

II.  The  records  of  increased  performance  constitute  the  chief 
argument  which  is  being  prepared  for  the  shortening  of  the 
labor  day.  To  reduce  the  hours  from  10  to  8,  and  maintain 
output,  would  require  an  increase  in  the  rate  of  production 
of  25  per  cent.  The  response  recorded  by  the  Bureau  of  Labor 
shows  that  such  an  increase  can  be  attained  on  the  average, 
where  the  inducement  is  offered. 

III.  The  du'ect  labor  cost  per  unit  of  product  or  per  job 
becomes  a  fixed  amount,  rehable  for  use  in  cost  calculations  of 
a  prehminaiy  or  prospective  character. 

Disadvantages.  —  I.  The  plan  of  gi\'ing  to  the  wage  earner 
all  the  saving  in  the  time  of  production  to  be  made  m  an  estab- 
hshment  from  and  after  a  certain  date,  is  bound  eventuaUy  to 
break  down  and  require  revision.  Such  a  revision  may  be 
forced  quickly  by  an  unexpected  spurt  of  workmen.  If  they 
1  Eleventh  Special  Report,  Washington,  1904,  p.  17. 


THE  OLDER  WAGE  SYSTEMS  251 

easily  attain  a  high  rate  of  performance,  and  thereby  reveal 
how  far  below  the  best  —  indeed,  how  unworthy  and  absurd  — 
was  the  '' average  "  or  ''fair  "  performance  used  as  the  initial 
basis  of  calculation,  the  employer  will  believe  that  he  has 
trapped  himself.  When,  under  such  conditions,  the  workmen 
get  wages  far  above  the  customary  incomes  of  men  of  equal 
ability,  general  opinion  will  condemn  the  rates  as  unneces- 
sary, and  as  unfair.  But  if  revision  of  the  rate  is  not  compelled 
by  the  workman's  response,  the  general  evolution  of  methods 
of  production,  including  the  introduction  of  improved  machin- 
ery and  superior  processes  of  working,  will  eventually  bring  it 
about.  Under  average  conditions,  with  piece  work,  about  88 
per  cent  of  the  benefit  of  all  improvements  affecting  the  rate 
of  production  accrues  to  labor,  and  12  per  cent  to  manage- 
ment. The  strike  of  1892,  at  the  plants  of  the  Carnegie  Steel 
Company,  was  due  to  the  cutting  of  obsolete  piece  rates. 
Before  this  strike  was  called,  some  of  the  laborers  were  getting 
larger  wages  than  the  superintendents,  owing  to  improved 
appliances  which  had  greatly  increased  production  since  the 
rates  were  first  set.  As  Mr.  Halsey  says,  ''Cutting  the  piece 
price  is  simply  killing  the  goose  that  lays  the  golden  egg.  Never- 
theless, the  goose  must  be  killed.  Without  it  the  employer 
will  continue  to  pay  extravagantly  for  his  work;  with  it 
he  will  stifle  the  rising  ambition  of  his  men."  ^ 

Although  the  rates  have  to  be  cut,  the  act  of  cutting  them 
is  looked  upon  as  a  declaration  of  war.  The  employees  con- 
sider it  the  violation  of  an  agreement.  The  conclusion  in 
many  cases  is  that  the  management  introduced  the  first  rates 
as  a  bait  to  induce  the  men  to  reveal  how  much  they  could 
do,  while  the  second  rates  constitute  the  springing  of  the  trap 
which  is  designed  to  hold  the  men  for  the  new  standards  of 
working,  while  not  allowing  wages  to  exceed  a  certain  moderate 
excess  over  day  wages.     The  response  of  the  workman  to  such 

^  F.  A.  Halsey,  The  Premium  Plan  of  Paying  for  Labor,  Am.  Soc.  of 
Mech.  Eng.  Trans.,  Vol.  12  (1891),  p.  756. 


252     ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

a  policy  is  to  oppose  the  introduction  of  piece  rates,  but  where 
they  are  estabhshed,  to  soldier  as  much  as  possible  while  the 
rates  are  being  set,  in  order  to  get  a  long  time  base,  and  then 
to  control  the  pace  so  that  the  wages  earned  will  never  rise 
above  the  point  which  is  thought  to  be  the  maximum  the 
employer  will  allow.  At  that  rate  performance  is  pegged, 
and  held,  against  all  efforts  of  the  management  to  increase  it 
further.  The  piece-work  system,  after  such  a  series  of  events, 
settles  down  into  an  antagonism  of  interest  between  manage- 
ment and  men,  which  is  as  clearly  defined  and  enduring  as 
any  contest  of  policy  possible  under  day  rates. 

II.  High  speeds  are  hard  on  machinery  and  equipment, 
especially  where  the  machine  speeds  are  not  scientifically  set, 
and  where  the  mechanical  conditions  are  not  kept  under 
competent  control. 

III.  By  analogy,  high  rates  of  performance  are  hard  on  the 
men.  As  was  pointed  out  in  the  discussion  of  fatigue,  high 
performance  may  be  costly  in  human  energy,  unless  the  man- 
agement possesses  the  ability  to  enforce  standards  conform- 
able to  the  laws  of  fatigue.  All  extreme  exponents  are 
dangerous  in  the  hands  of  ordinary  management. 

IV.  The  tendency  of  piece  rates  is  toward  volume  at  the 
expense  of  quality,  since  the  wage  follows  the  tally  of  pieces 
finished. 

V.  Straight  piece  work  does  not  guarantee  day  wages.  The 
discouragement  of  low  earnings,  therefore,  besets  the  learner. 

Department  bonuses.  —  A  group  bonus  has  been  devised 
by  Cadbury  Brothers  Ltd.  of  Bourneville,  England.  A  bonus 
is  given  on  the  output  of  a  department,  the  fund  being  divided 
into  shares.  This  gives  an  inducement  to  the  employees  to 
keep  the  number  of  workers  in  the  department  down  to  the 
lowest  point,  since  any  increase  in  the  number  diminishes 
each  individual  share,  by  increasing  the  number  of  shares. 
The  wages  and  bonuses  are  so  adjusted  by  Cadbury  Brothers 
Ltd.,  that  a  good  department  will  usually  receive  75  per  cent 


THE  OLDER  WAGE  SYSTEMS  253 

of  its  remuneration  in  time  wages,  and  25  per  cent  in 
bonuses.^ 

Profit  sharing.  —  Profit  sharing  is  not  a  complete  sj'stem 
of  wage  pa^Tnent,  but  an  adjunct  which  maj^  be  added  to  any 
of  the  fundamental  plans  which  do  not  sufficiently  awaken 
the  energies  of  the  employees.  The  usual  plan  of  profit  shar- 
ing is  to  calculate  the  profits  of  an  establisliment  for  a  fiscal 
period  —  either  a  year  or  a  half-year  —  and  to  pay  a  fixed 
proportion  of  them  to  the  employees  in  the  form  of  a  percent- 
age added  to  wages.  Profits  may  be  defined,  for  the  purpose 
of  this  distribution,  as  that  portion  of  gross  earnings  which 
remains  after  the  usual  operating  expenses  have  been  deducted, 
and  after  interest  on  borrowed  money  and  a  reasonable  remim- 
eration  on  the  proprietor's  capital  has  been  taken  out.  This 
sum  is  di^4ded  betvreen  the  proprietors  and  the  employees. 
The  di^dsion  may  be  mto  equal  parts  —  dollar  for  dollar  — ■ 
or  it  may  be  in  such  a  proportion  as  to  give  the  same  percent- 
age of  dividend  on  the  capital  and  on  the  total  simi  paid  out 
in  wages  diu-ing  the  period.  The  latter  plan  would  di^-ide 
the  fund,  in  the  average  case,  in  the  ratio  of  4  to  1.  Still  a 
different  system  is  to  calculate  separately  the  profit  made  on 
each  job,  and  assign  a  fixed  percentage  of  it  to  the  men  engaged 
on  that  job. 

When  the  total  share  to  be  received  by  labor  has  been  de- 
cided upon,  the  next  step  is  to  distribute  it  to  the  indi^'idual 
workman.  This  individual  distribution  is  ahiiost  alwaj's  on 
the  basis  of  the  wages  earned.  It  is  ver\'  common,  however, 
to  exclude  from  participation  those  persons  who  have  been 
emplo3^ed  for  less  than  a  year.  The  remamder  of  the  employees 
may  be  grouped  somewhat  into  classes,  in  such  a  way  that  the 
dividend  is  greatest  for  those  of  longest  term  of  service.  The 
bonus  so  calculated  may  be  paid  out  in  cash,  or  it  may  be 
credited  on  the  books  of  the  company  in  pajmient  for  stock 

^  Edw.  Cadbun^,  Experiments  in  Industrial  OrganizLation,  X.  Y.,  1912, 
pp.  144-145. 


254      ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

which  is  to  be  issued  when  fully  paid,  or  it  may  be  placed  in 
a  fund  to  provide  old-age  pensions  or  some  other  form  of 
deferred  benefit. 

The  experience  of  the  leading  profit-sharing  concerns  in  this 
country  seems  to  indicate  that  the  plan  is  only  successful  when 
coupled  with  a  stock-sharing  or  stock-purchasing  arrangement. 
The  Proctor  and  Gamble  Company  in  1903  abandoned  the 
cash  distribution  of  profits  to  cmplojTes,  and  instituted  a 
plan  which  makes  profit  sharing  an  element  in  a  stock-pur- 
chasing plan.  Any  employee  of  that  corporation  may  sub- 
scribe for  an  amount  of  stock  equal  at  its  market  value  to  his 
annual  wages  or  salary.  He  must  pay  2J  per  cent  down  and 
4  per  cent  annually  thereafter  for  his  stock;  the  corporation 
aids  hhii,  however,  by  advancing  him  the  unpaid  portion  of  his 
shares  at  3  per  cent,  and  by  crediting  him  annually  for  the 
first  five  years  with  12  per  cent  of  his  yearly  wages,  for  the 
second  five  years  with  15  per  cent  of  his  wages,  and  thereafter 
with  18  per  cent.  After  5  years  of  stock  owning  the  employee's 
stock-purchasing  power  is  increased  25  per  cent,  after  10  j^ears 
50  per  cent,  while  every  increase  in  wages  brings  a  propor- 
tional increase  of  stock-purchasing  power. 

Profit  sharing  does  not  choose  as  a  basis  for  the  distribution 
of  the  extra  gains  any  measure  of  the  indi\adual  efficiency  of 
persons.  It  passes  by  such  individual  records  and  fixes  upon 
an  item  —  profits  —  which  expresses  the  prosperity  of  the 
business  as  a  whole.  In  so  doing  it  aims  at  team  work,  and 
the  creation  of  a  general  spirit  of  loyalty,  rather  than  at  excep- 
tional individual  achievements.  The  decisive  point  of  the  plan, 
economical^  speaking,  is  the  question  whether  or  not  the 
response  made  b}^  the  employees  in  the  form  of  greater  care 
and  energy  and  regularity  in  work,  will  make  up  for  the  extra 
share  divided  out  to  them,  so  that  the  dividend  received  by 
capital  will  not  be  diminished,  but  may  even  be  increased. 

Similar  plans.  —  It  is  to  be  noticed  that  profit  sharing 
involves   a   measure   of   joint   risk   taking.     It   is,    therefore, 


THE  OLDER  WAGE  SYSTEMS  255 

distinct  from  any  plan  for  distributing  a  bonus  to  employees 
in  the  form  of  a  fixed  percentage  added  to  the  wages,  and  given 
regardless  of  the  profits  earned  by  the  employer.  It  is  also 
distinct  from  the  plan  of  the  Ford  Motor  Company  of  Detroit 
of  giving  a  high  wage  to  those  employees  who  attain  certain 
moral  and  economic  standards.  Of  the  Ford  plan,  Mr.  Boyd 
Fisher,  Vice-President  of  the  Detroit  Executives'  Club,  has 
said,  ''The  Ford  plan  is  not  true  profit  sharing,  because  what 
the  workers  receive  is  proportional  neither  to  the  extent  of  the 
profits  of  the  business,  nor  to  their  contribution  of  individual 
efficiency.  Higher  wages  are  given  solely  upon  condition 
that  the  worker  adopt  a  proper  standard  of  living,  an  object 
that  has  never  before  been  introduced  into  profit  sharing,  and 
an  object  that  makes  the  Ford  plan  a  totally  different  scheme."  ^ 
Advantages.  —  I.  Profit  sharing  encourages  the  negative 
virtues.  It  does  not  very  greatly  arouse  the  positive  ones. 
It  removes  obstructions  without  stimulating  individuals  to 
strenuousness.  It  makes,  therefore,  for  such  results  as  the 
economy  of  materials,  the  better  care  of  tools,  and  sound, 
honest  workmanship.  A  steady  condition  of  moderate  indus- 
try is  rather  feebly  promoted.  Idlers  who,  under  this  system, 
are  stealing  from  their  fellows  as  well  as  from  the  management, 
become  unpopular.  In  general,  a  willing  and  teachable  atti- 
tude of  mind  comes  to  prevail,  which  produces  a  sound  pubHc 
opinion  or  "habit  of  the  shop." 

II.  If  the  ultimate  desire  of  men  employed  under  profit 
sharing  still  remains  personal  gain,  the  method  of  attaining  it 
is  made  more  social  than  under  any  of  the  other  wage  plans. 
There  is  set  up  a  joint  aim  for  management  and  men,  which 
emphasizes  solidarity  of  interest.  The  employee  is  given  a 
glimpse  of  the  proprietor's  problems,  and  a  share  in  them  which 
may  somewhat  modify  his  mental  attitude. 

III.  The  pecuniary  benefits  of  profit  sharing  are  indiscrimi- 
nately distributed,  descending,  as  does  the  rain,  upon  the  just 

1  The  Detroiter,  Jan.  25,  1915. 


25G      ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

and  unjust  alike.  And  so  the  plan  is  suited  for  situations 
where  individual  contributions  cannot  be  accurately  measured. 
This  suggests  that  profit  sharing  is  a  plan  which  ought  to 
be  more  at  home  among  salaried  men  than  among  wage 
earners. 

Disadvantages.  —  I.  The  plan  is  only  appropriate  for 
estabhshed  and  successful  businesses  which  can  reasonably 
anticipate  regular  profits. 

II.  The  process  of  calculating  the  profits  aboimds  in  accoimt- 
ing  intricacies  and  arbitrary  determinations  so  that,  if  the 
original  spirit  which  inaugurated  the  system  chances  to  wane, 
there  are  opportimities  for  disguising  the  earnings.  '^The 
workmen  have  no  means  of  knowing/"  says  Halsey,  "if  the 
agreement  is  carried  out.  With  their  exaggerated  ideas  of 
the  profits  of  business,  the  results  must  be  in  many  cases  dis- 
appointingly small;  and  they  will  doubt  the  honesty  of  the 
di\'ision.  What  is  to  be  done  in  such  a  case?  In\'ite  the  work- 
men to  appoint  a  coromittee  to  examine  the  books,  and  report? 
^lost  employers  will  demur  at  this,  and  yet  without  it  the 
employees  can  have  no  assiuance  of  good  faith;  and  were  it 
done,  what  good  could  result?  How  many  workmen's  com- 
mittees are  there  who  are  sufficiently  versed  in  modern  accounts 
to  form  any  idea  of  the  proceeds  of  the  year's  business  from  an 
examination  of  the  books?  In  this  Hght  the  profit-sharing 
plan  is  seen  to  be  an  agreement  between  two  parties,  the  first 
of  whom  has  ever\^  temptation  and  opportunity  to  cheat  the 
second,  while  the  second  has  no  means  of  knowLug  if  he  has 
been  cheated,  and  no  redress  in  any  case."  ^ 

III.  It  is  an  arbitrary  an*angement  to  couple  any  part  of 
the  income  of  the  workman  with  the  fluctuation  of  business 
conditions  over  which  he  has  no  personal  control.  Profits  in 
a  business  are  due,  not  only  to  the  capacity  of  the  shop  employee 
or  office  clerk,  but  to  the  supply  of  capital,  the  fluctuations  of 
the  market,  the  advantages  or  disadvantages  of  the  location, 

1  Trans.  Am.  Soc.  Mech.  Eng.,  Vol.  12  (1891),  p.  758. 


THE  OLDER  WAGE  SYSTEMS  257 

the  judgment  used  iii  extending  credit,  and  the  choice  of  suit- 
able patterns  and  quaHties  of  goods  to  make. 

IV.  It  is  an  axiom  that  speculation  is  unsuited  for  small 
investors.  Business  profits  are  speculative;  and  the  profit 
sharer  usualh'  has  not  the  financial  reserve  to  enable  him  to 
average  out  fluctuations,  and  preserve  his  habits  of  consump- 
tion undisturbed.  In  his  case  income  and  expenditure  are 
dii-ect-connected,  so  that  irregular  income  tends  to  derange 
the  entire  economic  fife. 

y.  The  profits  of  this  system  are  too  small,  too  long  post- 
poned, and  too  httle  influenced  b}^  the  effort  of  an  individual 
to  make  them  an  effective  motive  with  the  average  laborer. 
''The  average  workman,"  says  IMr.  Ta^dor,  ''m  order  to 
maintain  a  rapid  pace,  should  be  given  the  opportunity  of 
measuring  his  performance  against  the  task  set  him  at  fre- 
quent intervals.  ]\Iany  men  are  incapable  of  looking  very  far 
ahead,  but  if  they  see  a  definite  opportunity  of  earning  so 
many  cents  by  working  hard  for  so  many  minutes,  they  will 
avail  themselves  of  it."  ^ 

VI.  The  dividends  under  profit  sharing  come  to  be  looked 
upon  as  a  matter  of  custom  and  as  a  right.  It  is  difficult  to 
keep  aHve  the  sense  of  obhgation  to  put  forth  effort  in  coopera- 
tion with  the  management  to  create  these  extra  profits.  The 
lack  of  an}^  close  connection  between  individual  exertion  and 
reward  makes  the  stimulus  to  extra  effort  small.  The  capac- 
ity to  feel  WTonged  if  dividends  are  withdrawn  persists  how- 
ever m  undiminished  strength. 

VII.  There  is  no  new  way  opened  by  which  exceptional 
individuals  can  cash  in  their  reserve  talents  to  their  own  per- 
sonal advantage. 

VIII.  In  spite  of  the  sohdarity  at  which  profit  sharing  aims, 
it  is  opposed  by  trades  unions.  The  distinction  in  kinds  of 
sohdarity  is  elucidated  by  Professor  Taussig:  ''Trade  union- 
ism looks  to  a  horizontal  division;   all  the  emplo^^ees  in  a  trade, 

1  F.  W.  Taylor,  Shop  Managemeut,  X.  Y.,  1911,  p.  84. 


258      ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

.scattered  in  various  establishments,  are  to  be  united  in  com- 
mon action  against  all  the  employers.  Profit  sharing  looks 
to  a  vertical  division:  the  employer  and  employees  of  the 
single  estabhshment  are  to  be  united,  working  together  for 
the  connnon  weKare  of  then  compact  group,  sharing  the  gains 
and  perhaps  the  losses.  .  .  .  The  unions  are  opposed  to  profit 
sharing,  or  at  least  suspicious  of  it,  because  it  tends  to  make  the 
workman  interested  chiefly  in  the  welfare  of  his  iromediate 
fellow-employees,  not  in  that  of  all  workmen  of  the  trade  or 
locaUty."  ^  To  the  unions,  profit  sharing  is  a  scheme  for 
giving  to  the  workmen  somethmg  they  have  rightly  earned, 
and  making  it  appear  as  a  gift.  To  them  it  is  often  an  advertis- 
ing feature. 

Profit  sharing  for  salaried  employees.  —  Work  which  is 
paid  for  by  salaries  is  usually  veiy  much  less  a  function  of 
time  than  that  wliich  is  paid  for  by  wages.  The  efficiency  of 
the  salaried  worker  is  revealed  only  when  considerable  periods 
of  time  are  taken  into  account.  It  is  customary,  therefore, 
to  calculate  salaries  in  terms  of  a  month  or  a  3'ear  instead  of 
in  terms  of  days  or  weeks.  The  ser^dce  paid  for  by  salaries  is 
not  capable  of  as  exact  meastu-ements,  in  terms  of  money, 
as  are  wage  ser^dces,  so  that  the  remuneration  takes  the  form 
of  a  round  number,  while  increases  in  it  are  made  by  ma- 
terial but  infrequent  advances  from  one  round  nimiber  to 
another. 

The  staff  employee  contributes  an  indefinite  share  to  the 
final  result.  IMuch  must  be  trusted  to  his  abihty  to  work  for  a 
distant  objective  and  to  feel  enthusiasm  for  an  impersonal 
project.  American  practice  is  in  the  direction  of  pacing  ad- 
ministrators high  salaries  rather  than  a  share  of  profits.  For 
wage  earners  it  appears  to  be  tending  somewhat  toward  gain- 
sharing  arrangements.  It  would  seem  more  logical  to  stimu- 
late  staff  employees  and   responsible   officers   by   a   share   of 

1  F.  W.  Taussig.  Principles  of  Economics,  X.  Y.,  1911,  Vol.  II,  pp. 
303-304. 


THE  OLDER  WAGE  SYSTEMS  259 

profits  than  to  make  such  an  offer  to  wage  earners,  whose 
responsibihty  is  more  completely  bounded  by  the  terms  of 
the  specific  tasks.  The  basis  of  salaries  is,  and  must  continue 
to  be,  a  stipend  to  insure  to  the  individual  the  standard  of  life 
of  his  class,  and  so  relieve  his  mind  from  financial  worries. 
But,  if  an  addition  could  be  made  to  this  basis,  which  would 
vary  as  the  larger  problems  of  the  business  were  well  or  ill 
solved,  the  arrangement  would  seem  to  be  justified  as  a  recog- 
nition of  the  essential  partnership  which  men  of  managerial 
responsibility  sustain  to  capital,  arising  out  of  the  discretion- 
ary element  in  the  duties  performed. 

Carnegie's  plan.  —  One  of  the  greatest  successes  ever 
achieved  with  profit  sharing  in  American  industry  was  made 
by  Andrew  Carnegie  in  the  development  of  junior  executives. 
The  plan,  stated  in  the  words  of  its  author,  was  as  follows: 
''Speaking  from  experience,  we  had  not  gone  very  far  in  manu- 
facturing before  discovering  that  perfect  management  in 
every  department  was  needed,  and  that  this  depended  upon 
the  men  in  charge.  Thus  began  the  practice  of  interesting  the 
young  geniuses  around  us,  as  they  proved  their  ability  to 
achieve  unusual  results  —  the  source  of  big  dividends.  These 
received  small  percentages  in  the  firm,  which  were  credited  to 
them  at  the  actual  cash  invested,  no  charge  being  made  for 
good-will. 

''Upon  this  they  were  charged  interest,  and  the  surplus 
earned  each  year  beyond  this  was  credited  to  their  account. 
By  the  terms  of  the  agreement  three-quarters  of  their  colleagues 
had  the  right  to  cancel  it,  paying  the  party  the  sum  then  to  his 
credit.  This  provision  was  meant  to  meet  possible  extreme 
cases  of  incompatibility  of  temper,  or  if  the  recipient  should 
prove  incapable  of  development,  or  of  enduring  prosperity. 
At  death  the  interest  reverted  to  the  firm  at  book  value.  The 
young  men  were  not  permitted  to  assume  any  financial  obliga- 
tion, and  not  until  their  share  was  fully  paid  by  the  profits, 
and  there  was  no  further  liability  upon  it,  was  it  transferred 


260     ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

to  them.  Thus  thoughts  of  possible  loss  never  prevented 
concentration  upon  their  daily  duties.  They  were  not  absorbed 
in  the  daily  quotations,  for  the  shares  were  not  upon  the  stock 
exchange  or  transferable.  This  policj^  resulted  in  making 
some  forty-odd  young  partners,  a  number  which  was  increased 
at  the  beginning  of  each  3'ear."  ^ 

The  Bethlehem  Company.  —  The  Carnegie  traditions  are 
perpetuated,  in  somewhat  altered  form,  in  the  bonuses  applied 
to  the  executives  of  the  Bethlehem  Company.  There  is  no 
single  comprehensive  plan  followed  in  this  establishment,  but 
the  endeavor  is  made  to  discover  for  each  department  some 
record  which  will  indicate  the  efficiency,  and  make  a  portion 
of  the  remuneration  of  officers,  heads  of  departments,  super- 
intendents, salesmen,  or  workmen  vary  as  the  efficienc}"- 
index  varies.  Thus,  in  a  manufacturing  department,  bonuses 
ma}^  depend  upon  the  amount  by  which  actual  conversion 
costs  fall  below  some  set  figure;  salesmen  may  be  rewarded 
proportionally  to  the  profits  realized  on  particular  orders 
booked  by  them;  in  contract  work  those  responsible  for  speed 
will  divide  the  time  bonuses  earned;  in  other  cases  bonuses 
may  vary  inversely  with  the  demurrage  paid  to  railroads,  or 
directly  with  the  value  of  waste  materials  recovered  and  sold. 
It  is  understood  that  the  president  of  the  Bethlehem  Company 
has  a  nominal  salary  of  810,000  but  receives  a  variety  of  bonuses, 
the  total  of  which  in  1914  amounted  to  8300,000. 

The  Sliding  Scale.  —  A  sliding  scale  is  a  piece-rate  plan  of 
paying  labor,  resulting  from  collective  bargaining,  and  so 
adjusting  wages  that  they  will  rise  and  fall  with  the  selling 
price  of  the  materials  worked  upon.  The  result  of  coupling 
wages  and  prices  together  is  to  bring  about  a  crude  sort  of 
profit  sharing  and  loss  sharing. 

A  characteristic  scale  is  as  follows: 

^  Andrew  Carnegie,  The  Organization  of  Manufacturing  Industries, 
(The  Making  of  America,)  Edited  by  Robt.  J.  La  FoUette,  Vol.  Ill, 
pp.  273-274. 


THE  OLDER  WAGE  SYSTEMS 


261 


Puddling  Schedule  per  ton  of  2240  lbs. 
(For  boiling  pig  iron  to  make  wrought  iron) 

Wages  When  the  Price  of  Bar  Iron  is 

$5 .  00 1      cent  per  pound 

5.00 1.1  cents    " 


5.00. 
5.25. 
5.50. 
5.75. 
6.00. 
6.25. 
6.50. 
6.75. 
7.00 


1.2 
1.3 
1.4 
1.5 
1.6 
1.7 
1.8 
1.9 
2. 


The  thought  which  underhes  the  plan  is  that  employers  should 
pay  well  when  prices  are  high,  but  that,  in  periods  of  low  prices, 
employees  can  better  afford  to  take  low  wages  than  have  the 
plants  shut  down.  By  adopting  an  automatic  arrangement 
which  makes  wages  a  function  of  something  which  is  accepted 
as  an  index  of  the  employer's  abihty  to  pay,  the  transition  from 
higher  to  lower  levels  can  be  accomplished  without  strikes, 
and  that  from  lower  to  higher  wages  without  lockouts. 

The  first  sliding  scale  was  introduced  in  England  in  the  iron 
and  steel  trade,  through  the  efforts  of  G.  B.  Thorneycroft  of 
Wolverhampton,  in  1840,  In  the  latter  part  of  the  nineteenth 
century  the  plan  attained  considerable  extension  in  the  coal 
and  iron  trades  of  Great  Britain,  but  it  has  now  been  entirely 
abandoned  in  so  far  as  the  coal  trade  is  concerned.  On  the 
Continent  the  system  has  never  been  introduced.  The  first 
American  sliding  scale  was  adopted  in  1865,  through  the  influ- 
ence of  the  Sons  of  Vulcan,  and  for  the  purpose  of  regulating 
the  wages  paid  for  boiling  pig  iron.  Since  that  time  the  sys- 
tem has  gradually  gained  for  itself  a  permanent  footing  in  the 
basic  processes  of  working  iron  and  steel. 


262      ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

The  problem  of  adopting  a  sliding  scale  is,  first  of  all,  one  of 
choosing  a  price  base.  It  is  essential  to  the  proper  working 
of  the  plan  that  there  be  some  commodity  which  will  serve  as  a 
barometer  of  the  financial  condition  of  the  industiy,  as  coal 
of  the  coal  mining  industiy.  pig  iron  of  the  blast  fm^nace  indus- 
try, or  billet  steel  of  the  steel  industrA'.  It  is  desirable  that  the 
product  be  simple,  or  at  least  strictly  standardized:  be  sold 
upon  a  highly  perfected  market,  so  that  individual  sale  trans- 
actions will  conform  closely  to  a  ruUng  price,  and  that  sales 
take  place  freely  without  the  inter\'ention  of  expensive  and 
high-pressure  selling  campaigns. 

The  second  problem  is  to  determine  a  minimum  wage  rate 
and  equate  it  with  the  minimum  price,  and  to  carr\'  this  mini- 
mum wage  unaltered  up  the  price  scale,  until  a  point  is  reached 
where  it  is  agreed  that  the  employer  can  pay  more  than  a 
minimum.  Third,  above  this  point  a  scheme  of  progi'ession 
must  be  worked  out  which  will  cause  wages  to  rise  with  prices 
to  an  extent  which,  on  the  one  hand,  wiU  be  sufficient  to  satisf^^ 
the  unions  and  lead  them  to  csjrry  out  their  agreements,  but 
which,  on  the  other  hand,  will  aUow  profits  to  increase  more 
rapidly  than  wages,  so  that  employers  will  have  no  inducement 
to  refuse  the  advances.  A  wage  scale  which  advances  2  per 
cent  for  each  3  to  5  per  cent  of  advance  in  prices  is  about  the 
usual  thing.  As  for  the  administration  of  a  shding  scale,  the 
practice  in  the  United  States  is  for  manufacturers,  at  bi- 
monthl}'  inter^'als,  to  communicate  to  committees  of  the 
unions  sworn  statements  of  the  prices  received  dm'ing  the 
preceding  two  months.  In  case  of  dispute  as  to  facts,  access 
to  the  emplo3*er's  books  is  permitted.  Upon  the  basis  of  the 
ascertained  prices,  wages  are  fixed  for  the  succeeding  two 
months. 

Advantages.  —  The  Enghsh  Royal  Labor  Commission  of 
1S94  advanced  the  following  points:  "The  advantages  claimed 
for  this  system  are  (1)  that  it  ob™tes  disputes  about  wages, 
at  any  rate,  during  fixed  periods;    (2)  that  it  promotes  a  feel- 


THE  OLDER  WAGE  SYSTEMS  263 

ing  of  copartnership  and  common  interest  between  employers 
and  employed;  (3)  that  it  enables  employers  to  calculate  what 
will  be  the  cost  of  production,  in  wages,  for  some  time  ahead, 
and  therefore  to  enter  into  long  contracts  with  some  feeling  of 
security;  (4)  that  it  causes  alterations  in  the  rates  of  wages 
to  take  place  gradually  and  by  a  series  of  small  steps,  instead 
of  suddenly  and  at  a  bound."  ^ 

Disadvantages.  —  I.  An  annually  revised  scale  provides 
recurrmg  periods  of  uncertainty.  The  difficulty  of  this  has 
been  reduced  as  far  as  possible  by  the  non-interruption  clause 
mtroduced  smce  1901-1902  into  contracts  between  the  Amal- 
gamated Association  and  the  employers.  The  scale  year 
ends  June  14.  The  new  scale  is  to  be  presented  to  employers 
not  later  than  May  1.  An  adjustment  period  extends  from 
May  1  to  June  15,  followed  by  a  concihation  period  from  June 
15  to  July  1.  No  shut-down  or  strike  is  to  take  place  until 
after  Jul}^  1. 

II.  It  is  inevitable  that  there  should  be  a  speculative  ele- 
ment mtroduced  into  wages  by  hitching  them  to  some  com- 
modity price.  The  significance  of  a  shding  scale  to  each  of  the 
parties  in  the  contract  depends  upon  which  way  that  party 
expects  It  to  slide.  If  a  base  rate  is  set  low  in  anticipation  of 
higher  prices,  but  a  season  of  low  prices  ensues,  there  wifi  be 
suffering  among  employees.  If  a  scale  is  set  high  in  depressed 
times,  and  a  war  boom  follows,  the  wages  may  mount  to  levels 
which  try  the  patience  of  emploj^ers. 

III.  Dissatisfaction  has  sometimes  arisen  from  the  fact  that, 
for  a  tune  after  current  prices  have  become  high,  mills  still 
continue  to  work  on  contracts  previously  entered  upon  at 
lower  prices.  This  is  not  completely  offset  by  high-priced 
contracts  holding  over  into  periods  of  low  current  prices,  for 
cancefiation  of  contracts  is  freely  practised  at  such  times  A 
remedy  was  introduced  into  the  South  Wales  colhery  agree- 
ments after  1892,  providing  that  no  contract  should  be  taken 
1  Final  Report,  Sees.  109-115. 


264     ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

into  account  as  determining  prices  for  more  than  six  successive 
audits  of  two  months  each. 

IV.  No  matter  how  fair  an  adjustment  is  given  to  a  sHding 
scale,  industrial  changes  will,  at  length,  make  it  out  of  date, 
and  compel  its  revision.  The  general  drift  of  prices,  the  increase 
in  the  cost  of  some  influential  raw  material,  the  introduction 
of  new  equipment  or  unproved  processes,  the  fluctuation  of 
the  labor  market,  the  rise  in  the  cost  of  living,  or  the  competi- 
tion of  new  districts,  are  but  a  few  of  the  things  which  make 
new  equations  necessary.  In  1865  the  boiling  scale  began  at 
$4.00  per  ton,  when  wrought  iron  sold  at  2 J  cents  per  pound; 
in  1905-6  this  scale  began  at  $5.00  when  wrought  iron  sold  at 
1  cent  per  pound. 

BIBLIOGRAPHY 
See  the  close  of  Ch.  XIV. 


CHAPTER  XIV 

THE  NEWER  WAGE  SYSTEMS 

The  Halsey,  Rowan,  Taylor,  Gantt, 
AND  Emerson  Systems 

The  Halsey  premium  system.  —  This  system  of  wage  pay- 
ment is  named  after  F.  A.  Halsey,  being  devised  by  him  while 
he  was  Superintendent  of  the  Rand  Drill  Company  of  Sher- 
brooke,  Canada.  The  idea  of  it,  expressed  in  a  sentence,  is 
to  ascertain  the  average  previous  times  of  doing  jobs,  and  to 
offer  the  workmen  an  agreed  percentage  of  the  wages  of  any 
portion  of  this  time  they  may  save,  in  addition  to  their  regular 
hourly  or  daily  rate  for  the  time  taken. 

The  author  of  the  plan  says  of  his  time  base,  ''Time  is  deter- 
mined from  previous  experience."  ^  In  practice,  the  average 
of  previous  times  is  taken.  He  explains  that  the  aim  is  to  be 
hberal  with  the  time  rather  than  with  the  premium.  It  is 
usual  to  guarantee  that  when  the  tmie  limits  are  once  set  for 
jobs  they  will  not  be  reduced,  unless  the  method  of  doing  the 
work  is  changed.  Day  wages  are  guaranteed  to  those  who 
fail  to  reach  the  standard. 

To  workmen  who  finish  their  tasks  in  less  than  the  allotted 
time,  there  is  paid,  in  addition  to  the  hourly  wages  for  the  time 
worked,  a  proportion  of  from  |-  to  J  of  the  wages  of  the  time 
saved.  Mr.  Halsey  indicates  that  the  50  per  cent  bonus  may 
be  paid  if  the  task  is  a  difficult  one  which  has  been  scientifically 
set,  but  that  33^  per  cent  is  enough  when  the  records  of  past 

1  The  Premium  Plan  of  Paying  for  Labor,  Am.  Soc.  of  Mech.  Eng. 
Trans.,  Vol.  12  (1891),  p.  759. 

265 


266      ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

day  work  or  piece  work  are  used.  If,  then,  a  workman  who 
is  on  an  hourly  rate  of  25  cents  has  an  8  hour  task  given  to 
him,  and  completes  it  in  6  hours,  and  the  bonus  is  |  of  the 
saved  time,  he  will  receive  — 

6  X  $0 .  25  =  $1 .  50,    the  hourly  rate,  and 

I  X  SO .  50  =       .167,  the  bonus. 

Total         =  $1 .  667,  which  is  at  the  rate 

of  S0.278  per  hour,  or  S2.22  per  day. 

The  premium  is  calculated  on  each  job  separately,  so  that 
failure  on  one  job  does  not  sacrifice  the  premium  earned  on 
another.  Shop  conditions  are  not  disturbed.  The  accep- 
tance of  the  plan  is  voluntary  with  each  workman.  Regular 
wages  are  paid,  and  the  bonuses  earned  are  put  in  separate 
envelopes  and  placed  at  the  disposal  of  any  workmen  who  will 
take  them.  It  is  rather  difficult  for  labor  organizations  to 
find  a  grievance  in  a  plan  which  guarantees  previous  rates  of 
wages,  sets  previous  rates  of  work  as  the  time  base,  and  merely 
offers  an  extra  remuneration  for  extra  effort. 

The  plan  differs  from  day  wages  in  that  workmen  get  extra 
pay  for  extra  product,  and  from  piece  work  in  that  the  rate  of 
pay  per  piece  decreases  as  the  amount  finished  in  a  given  time 
increases.  It  has  been  said  that  this  plan  was  originated  in 
1886  by  Mr.  Henry  R.  Towne,  President  of  the  Yale  and  Towne 
Manufacturing  Company.  The  Towne  plan  divides  an  estab- 
lishment into  departments  and,  having  determined  certain  items 
of  prime  cost  in  each  department,  gives  to  the  men  a  share  in 
any  gain  they  can  make  by  reducing  the  labor  time,  decreas- 
ing material  waste,  or  otherwise.  The  Halsey  plan  considers 
time  rather  than  labor  cost,  carries  the  bonus  calculation  down 
to  the  separate  jobs,  and  distributes  the  bonus  on  the  basis  of 
individual  performance. 

Advantages.  —  I.  The  Halsey  plan  is  easy  to  introduce. 
It  requires  no  preliminary  studies,  other  than  to  calculate 
previous  average  times,  and  it  calls  for  no  reorganization  or 


THE  NEWER  WAGE  SYSTEMS 


267 


new  agencies  other  than  those  requii'ed  to  collect  the  times  of 
current  jobs.  It  adjusts  itself  to  unstandardized  conditions 
and  to  the  ordinary  processes  of  administration. 


Hours 
3        4        5 


2 


3         4         5 

Hours 


Fig.  37.     Wages  and  Costs  under  the  Halsey  Premium  Plan 

Wages  per  day. 

Direct-labor  costs  per  piece  or  job. 

Standard  time  8  hours  (previous  averasje  time) 

Bonus  one-third  of  saved  time. 

II.  A  chief  merit  urged  for  the  plan  is  that,  by  dividing  the 
profit  of  saved  time  between  management  and  men,  it  makes 
for  the  permanence  of  the  bonus  rate.     If  an  unduly  Uberal 


268     ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

time  base  be  fixed  for  a  job,  and  if  as  a  consequence  a  workman 
makes  a  great  saving  in  time,  only  a  portion  of  the  saving  is 
given  to  the  workman:  an  arrangement  which  prevents  wages 
from  being  forced  up  to  such  liigh  figures  as  to  exhaust  the 
patience  of  the  employer. 

III.  The  ps^Tholog}^  of  the  plan  is  adroit.  If  an  emploj^ee 
is  able  to  complete  in  8  hours  ten  jobs  of  a  standard  time  of 
one  hour  each,  it  is  obviously  the  same  thing,  financially,  to 
offer  him  25  cents  an  hour  and  ^  of  his  saved  time,  as  to  offer 
him  25  cents  each  for  the  first  eight  jobs  finished  in  a  dsiy,  and 
8^  cents  for  each  additional  job.  The  psychologj^  of  the  two 
propositions  is,  however,  quite  different.  To  save  time  seems 
to  a  workman  a  process  of  conservation,  a  demonstration  of  his 
ability,  and  an  achievement  in  harmony  with  the  hurrying 
ideals  of  American  hfe;  to  produce  a  gi'eater  output  seems  more 
like  overworking,  and  glutting  the  market,  and  giving  his 
emplo^^r  somethmg  without  adequate  return. 

Disadvantages.  —  I.  If  there  is  not  the  same  motive  for 
soldiering  under  this  plan  as  under  the  day  rate,  there  is  a 
greater  temptation  to  it  than  under  piece  rates,  for  under 
piece  rates  the  workman  receives  all  of  the  wages  of  saved 
time.  The  unstandardized  conditions  which  the  system  is 
based  upon,  and  wliich  it  permits  to  contmue  undisturbed, 
give  opportunit}'  for  this  soldiering  to  be  successfuUj^  done. 

II.  Administratively  viewed,  the  pohcy  is  one  of  ''putting 
it  up  to  ''  the  workman.  It  is,  therefore,  fundamentally  a 
pohcy  of  drift. 

III.  If  the  sphtting  of  the  saved  tune  ensures  the  perma- 
nence of  the  rate,  it  does  so  at  the  cost  of  depriving  the  work- 
man of  a  complete  energizer.  Taking  the  conditions  assumed 
in  the  charts,  the  increase  in  dail\^  pay  offered  for  reducing  the 
time  the  first  eighth,  that  is  from  8  to  7  hours,  is  10  cents  under 
the  Halse}^  plan,  and  32.5  cents  under  piece  rates,  a  difference 
of  22.5  cents.  The  reward  of  reducing  the  time  the  much 
more  difficult  eighth  from  4  to  3  hours,  is  44  cents  under  the 


THE  NEWER  WAGE  SYSTEMS  269 

Halse}^  sj'stem,  and  SI. 33  under  piece  work,  a  difference  of 
89  cents. 

IV.  The  fairness  of  the  plan  of  dividing  the  profit  of  saved 
time  between  management  and  men  has  been  called  in  ques- 
tion. Mr.  Harrington  Emerson  has  said,  ''If  there  are  no 
improvements  by  the  emploA^er,  there  is  no  reason  why  the 
employee  should  not  get  in  full  the  increased  result  due  to  his 
greater  diligence  and  skill,  but  if  improvement  is  due  to  the 
employer's  better  equipment  there  is  no  justice  in  gi\dng  the 
employee  any  part  of  it."  ^  It  is  only  when  improvements  are 
made  by  both  parties  to  the  contract  in  something  like  the 
proportions  in  which  the  wages  of  saved  time  are  shared  that 
any  scheme  of  division  is  sound. 

V.  The  workmen  can  beat  the  game  by  spurting  on  certain 
jobs  to  capture  a  premium,  and  soldiering  on  other  jobs  to 
rest  up,  under  the  protection  of  the  guarantee  of  day  wages. 

The  Rowan  premium  plan.  —  A  somewhat  different  pre- 
mium system  for  sharing  saved  time  has  been  devised  by  Mr. 
James  Rowan  of  David  Rowan  and  Sons,  Glasgow,  Scotland. 
This  system,  like  that  of  Halse}^,  leaves  previous  conditions 
of  operation  and  management  undisturbed.  Standard  times 
are  based  on  experience.  Day  wages  are  guaranteed  to  those 
who  fail  to  reach  the  standard.  Like  the  Halsey  system  also, 
the  chief  aim  of  the  Rowan  plan  is  to  insure  the  permanence 
of  the  premium  rate,  by  limiting  the  earnings  a  workman  can 
make  by  unusual  saving  in  time. 

Under  this  plan  if  a  workman  reduces  the  time  by  a  certain 
percentage,  he  gets  an  equal  percentage  of  increase  in  his 
hourly  rate.  If  the  time  is  cut  25  per  cent,  the  wages  are 
increased  25  per  cent.  If  a  workman  whose  rate  is  25  cents 
per  hour  finishes  an  8  hour  job  in  6  hours,  saving  25  per  cent 
of  the  time,  he  receives  the  hourly  rate  for  6  hours  or  SI  .50, 
plus  25  per  cent  or  SO. 375,  making  the  job  rate  SI. 875,  and 
the  time  rate  S0.3125  per  hour,  or  .$2.50  per  day  of  8  hours. 

1  Discussion  in  Trans,  of  Am.  Soc.  of  Mech.  Eng.,  Vol.  25  (1903),  p.  78. 


270      ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

If  the  time  is  cut   50  per  cent,,  the  wages  are  increased  50 
per  cent.  etc. 

A  formula  for  the  wage  has  been  constructed  as  follows: 

I    Wages  of  1 

^^  „,  ^  ^.  ,       I  time  saved       Wages  of  1 

Wage  =  ^  ages  of  tmie  used  —  ^,  — z r  X  ^.  ,  >• 

.    ^^  ages  ot         tune  used  , 

[     time  set  J 

This  formula  is  useful  only  to  elucidate  one  point.,  namely,  that 

the  largest  earning  it  is  possible  for  the  employee  to  make  is 

double  the  guaranteed  wage.     .\nd  tliis  earning  is  theoretical, 

for  it  is  the  rate  of  pay  when  an  infinitesimal  of  time  is  taken. 

In  the  formula,  the  expression  — 

Wages  of  Wages  of  _  Wages  of 

time  saved  time  set        time  used 

mav  be  stated  as  — ^ 

^^  ages  ot         '  \\  ages  ot 

time  set  time  set 

Wages  of 

,  •    r        •  1  1  time  set 

As  the  time  used  decreases,  this  fraction  tends  toward  — : 

\\  ages  ot 

time  set 

or  imity .     Thus  the  formula  at  its  most  favorable  point  becomes, 

_.  ^,  ,     .  ,    ,     f  1      Wages  of  :      ,  ■  1     . 

\\  ages  =  U  ages  or    tmie    used  —    -  -  x    .  ,  ;  wmcn   is 

^  ^  1      time  used  j 

„-  Wages  of      Wages  of 

u  ages  =    .    ^         ,  —    .    "        , 

tune  used      time  used 

or  twice  the  homly  rate  for  the  time  taken. 

The  fluctuation  of  the  premium  may  be  seen  best  by  putting 

the  wage  elements  into  the  fonn  of  a  proportion: 

Wages  of      Wages  of       Wages  of    t, 
.  :    .  •:    .  ,  :  Premium 

time  set      time  saved     time  used 

In  the  case  of  a  job  of  8  hours  standard  time,  and  a  25  cent 
guaranteed  hourly  rate,  the  premium  for  performance  in  dif- 
ferent times  becomes, 


THE  NEWER  WAGE  SYSTEMS 


271 


Time 
8  hours.  .  .  . 

Wages  of 
time  set 
$2.00 

Wages  of 
time  saved 

$0.00 
0.25 
0.50 
0.75 
1.00 
1.25 
1.50 
1.75 
2.00 

Wages  of 
time  used 

$2.00 
1.75 
1.50 
1.25 
1.00 
0.75 
0.50 
0.25 
0.00 

Premium 
$0.00 

7      "    

2.00 

0.21875 

6      "    

2.00 

0.375 

5      "     

2.00 

0.46875 

4      "       ... 
3      "     

2.00 

2.00 

0.50 
0.46875 

2      "     

2.00 

0.375 

1      "     

2.00 

0.21875 

0      "     

2.00 

0.00 

The  remuneration  is  self-hmiting  for,  as  the  percentage  of 
the  standard  time  saved  increases,  the  base  —  the  wages  of 
used  time  —  to  which  this  percentage  is  apphed,  in  calculating 
the  premium,  decreases.  The  plan  is  more  liberal  than  the 
Halsey  system  in  rewarding  improvements  up  to  f  time  econ- 
omy. From  that  point  on  it  is  less  liberal.  Inasmuch  as  the 
improvement  of  pace  achieved  by  the  unaided  efforts  of  the 
workmen,  under  various  bonus  and  premium  plans,  will  seldom 
exceed  |^  or  -|,  this  system  is,  in  practice,  more  liberal  than  the 
Halsey  system.  On  the  other  hand,  the  self-hmiting  operation 
of  the  premium  calculation  so  reduces  the  reward  for  excep- 
tional performance  that  workmen  are  not  likely  to  exert  them- 
selves greatly.  Mr.  Barth  has  called  attention  to  this  defect 
as  follows:  ''The  Rowan  plan  cannot  be  very  successful  in 
inducing  a  workman  to  give  away  the  time  in  which  he  can  do 
a  piece  of  work,  when  the  time  allowance  for  this  is  excessive; 
for  it  is  then  so  easy  for  him  to  earn  a  substantial  increase  over 
his  day  wages  by  only  moderate  exertions  that  the  slightly 
higher  relative  increase  that  further  exertions  would  net  him 
will  not  appear  to  be  worth  his  while."  ^     If,  as  it  is  claimed, 

^  Testimony  of  Carl  G.  Barth  in  Hearings  before  the  H.  of  R. 
Sp.  Com.  on  The  Taylor  and  Other  Systems  of  Shop  Management, 
Washington,  D.  C,  1912,  III,  p.  1575. 


272      ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 


this  feature  protects  the  employer  from  having  to  pay  extraor- 
dinary wages,  it  is  hard  to  see  how  he  gets  any  advantage 
from  the  protection. 


Hours 


Hours 


Fig.  38.     Wages  and  Costs  under  the  Rowan  System 

Wages  per  day. 

Direct-labor  costs  per  piece  or  job. 

Standard  time  8  hours. 

Per  cent  of  time  saved  eciuals  per  cent  of  the  bonus. 

Since  the  Rowan  plan  is  so  similar  to  the  Halsey  system,  it 
will  not  be  necessary  to  list  separately  the  advantages  and 
disadvantages  of  it.  The  plan  has  not  yet  been  installed  in 
any  American  establishment. 


THE  NEWER  WAGE  SYSTEMS  273 

Premium  systems  with  task  times  scientifically  set.  —  In 
passing  to  the  consideration  of  the  s^'stems  of  Taylor,  Gantt, 
and  Emerson,  it  is  unportant  to  observe  that  we  leave  behind 
those  wage  plans  which  are  contented  with  ordinar}^  manage- 
ment, and  average  emplo3Tes,  and  with  the  attitude  of  putting 
the  question  of  improvement  of  methods  up  to  the  workmen. 
*'The  great  defect  common  to  all  the  ordinary  sj'stems  of  man- 
agement," said  Tajdor,  ^'is  that  their  starting-point,  their  ver^^ 
foundation,  rests  upon  ignorance  and  deceit,  and  that  tlirough- 
out  their  whole  com'se,  in  the  one  element  which  is  most  vital, 
both  to  employer  and  workman,  namely,  the  speed  at  which 
work  is  done,  they  are  allowed  to  drift  instead  of  being  intelli- 
gently directed  and  controlled."  ^  From  such  plans  we  pass 
now  to  a  group  of  sj^stems  which  aim  to  vigorously  control 
all  conditions,  to  set  the  task  with  scientific  accuracj^,  to  make 
the  task  difficult  enough  to  be  worthy  of  a  first-class  man,  and 
to  offer  a  generous  reward  for  successful  performance,  with- 
holding from  the  laborer  no  portion  of  the  advantage  he  earns 
by  reducing  his  time. 

The  Taylor  differential  piece-rate  system.  —  The  author  of 
this  system  was  Frederick  W.  Taylor,  the  principal  originator 
and  the  leading  exponent  of  scientific  management.  The  plan 
was  first  apphed  practical^  m  the  works  of  the  Midvale  Steel 
Company  at  Philadelphia  in  1884.  The  basic  principles  of 
the  system  are  thus  set  forth  by  their  author: 

(a)  A  large  and  clearl}"  defined  daily  task  for  each  man. 

(b)  Standardized  conditions  and   appliances   to  make    per- 

formance, in  the  time  allotted,  regularly  possible  for  a 
first-class  man. 

(c)  High  pay  for  success. 

(d)  Loss  in  wages,  and  eventual  discharge,  for  failure. 

The  prehminary  requirements  for  the  successful  introduc- 
tion of  the  differential  piece  rate  are  strictly  standardized  shop 
1  F.  W.  Taylor,  Shop  Management,  X.  Y.,  1911,  p.  45. 


274      ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

conditions,  and  a  reenforced  shop  administration  able  to  give  the 
workmen  personal  explanations  and  demonstrations,  complete 
written  instructions;  and  unusually  perfect  service  aids  of  all  sorts. 

The  standard  time  of  each  job  is  set  ^'ith  great  care,  on  the 
basis  of  motion  and  time  studies.  The  time  allowance  is 
adjusted  to  make  the  task  a  difficult  one,  expressing  about  all 
that  a  first-class  man,  who  is  well  instructed  in  his  work,  should 
be  asked  to  do  regularly.  The  task  standard  will  depend 
upon  the  state  of  the  labor  market  and  the  possibihty  of  secur- 
ing the  quahty  of  men  desned.  The  aim  is  to  be  Hberal  with 
the  premium  rather  than  with  the  time  base.  Taylor  sets 
out  to  pay  exceptional  men  roimdly  for  exceptional  work; 
whereas  Halsey  and  Rowan  aim  to  coax  ordinar\-  men  along  a 
moderate  course  of  improvement. 

Since  so  much  care  is  used  in  setting  the  time  base,  and  so 
much  administrative  eft'ort  is  devoted  to  keeping  all  the  condi- 
tions such  that  there  will  be  no  cause  outside  of  the  workman's 
own  vohtion  why  he  should  not  accomplish  his  task,  it  is  logical 
that  the  rate  of  pay  should  be  so  adjusted  as  to  strongly  stimu- 
late the  workman  to  do  his  part.  This  stimulus  is  produced 
by  using  two  piece  rates.  For  those  who  fall  below  the  stand- 
ard in  quantity  or  quahty  of  work,  a  piece  rate  is  fixed  which  is 
so  low  that  the  workman  will  earn  less  than  day  wages  and  so, 
after  attempting  to  reach  the  standard  but  failing,  will  quit 
and  go  elsewhere.  For  those  who  succeed,  a  very  high  rate 
of  pay  —  from  30  to  100  per  cent  higher  than  the  average  of 
the  trade  ^  —  is  fixed.  This  attracts  the  superior  men,  stimu- 
lates them  to  do  their  best,  and  pays  them  more  than  they  can 
earn  elsewhere. 

1  "'The  exact  percentage  by  which  the  wages  must  be  increased  in  order 
to  make  first-class  men  work  to  their  maximmn  is  not  a  subject  to  be 
theorized  over,  settled  by  boards  of  directors  sitting  in  solenm  conclave, 
nor  voted  upon  by  trades  unions.  It  is  a  fact  iniierent  in  human  nature 
and  has  only  been  determined  through  the  slow  and  difficult  process  of 
trial  and  error."  —  F.  W.  Taylor,  Shop  Management,  X.  Y..  1911,  p.  25. 


THE  NEWER  WAGE  SYSTEMS 


275 


The  plan  differs  from  straight  piece  work  by  using  two  rates, 
a  lower  one  for  unsatisfactory  work,  a  higher  one  for  satisfac- 
tory work.     Like  piece  work,   however,   it  gives  the    work- 


goo 

goo 
500 
400 

Hours 
12         3         4         5         6         7 

500 
yoo 
goo 
500 
400 
300 

200 

.50 
100 

*I2 

i\ 

\ 

> 

•« 
^ 

V 

f^- 

'a 

t 

300 

200 

.50 
100 

\ 

\ 

2.40 

Cost  p( 

)r  piece 

or  job 

1.60 

1.33 

U4 

1         2         3     ,4        5         6        7        [ 

Hours 

\ 

Fig.  39.    Taylor  Differential  Piece-Rate  System 

Wages  per  day. 

Direct-labor  cost  per  piece  or  job 

Standard  time  5  hours. 

Piece  rates  SI. 00  and  $1.50. 

man  all  the  wages  of  the  time  he  is  able  to  save.  Mr.  Taylor 
scorned  the  idea  of  taking  from  the  worker  any  part  of  his 
wages  of  saved  time.  The  employer  should  be  content  with 
the  low  overhead  charge  of  the  fast  pace. 


276     ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

The  rate  having  once  been  set  should  never  be  cut.  The 
time  base  is  to  be  revised  whenever  the  conditions  of  produc- 
tion furnished  by  the  management  are  altered  in  such  a  way 
that  the  task  set  is  virtually  a  different  one.  It  will  be  observed 
from  the  chart  that  the  workman  who  just  fails  to  reach  the 
standard  receives  $1.60  per  daj^,  while  the  pay  for  attaining 
the  standard  is  $2.40.  At  the  division  line  between  satisfactory 
and  unsatisfactory  performance  the  contrast  in  remuneration 
is  marked.  There  is  thus  set  up  a  vigorous  culling  action,  which 
attracts  the  attention  of  the  management  strongly  to  those 
employees  who  are  not  earning  the  bonus.  Of  this  feature  Mr. 
Taylor  said,  ''It  automatical^  selects  and  attracts  the  best 
men  for  each  class  of  work,  and  it  develops  many  first-class 
men  who  would  otherwise  remain  slow  and  inaccurate,  while 
at  the  same  time  it  discourages  and  sifts  out  men  who  are  in- 
curably lazy  or  inferior."  ^ 

Rewards  are  to  be  calculated  on  the  basis  of  a  period  of 
tune,  say  a  day  or  a  week,  so  that  sustained  performance  is 
required.  Failure  on  one  job  will  offset  success  attained  on 
another. 

Advantages.  —  I.  There  is  in  this  system  the  stimulus  of 
high  standards.  Of  the  management  there  is  demanded  com- 
plete mastery  of  conditions,  and  the  ability  to  set  a  definite 
task;  of  the  workman  there  is  required  a  performance  which 
demonstrates  him  to  be  a  first-class  man  of  his  trade. 

II.  The  functions  of  management  and  of  performance  are 
clearly  distinguished.  The  management  sets  the  conditions, 
and  in  that  setting  determines  its  profits;  the  men  put  forth 
their  efforts  as  operatives,  receiving  all  the  wages  of  gained 
time. 

Disadvantages.  —  I.  The  culling  action  at  the  point  of 
achieving  the  task  is  so  severe  that  the  definition  and  measure- 
ment of  the  task,  and  the  control  of  each  of  the  conditions  set 

1  F.  W.  Taylor,  A  Piece-Rate  System,  Proc.  Am.  Soc.  of  Mech.  Eng., 
Vol.  16  (1895),  No.  647,  p.  858. 


THE  NEWER  WAGE  SYSTEMS  277 

for  the  workman,  must  be  attended  to  with  great  care  to  avoid 
complaint  and  a  sense  of  injustice.  This  point  Mr.  Taylor 
recognized,  for  he  said,  ''When  the  work  is  of  such  variety  that 
each  day  presents  an  entirely  new  task,  the  pressure  of  the 
differential  rate  is  sometmies  too  severe.  The  chances  of 
faihng  to  quite  reach  the  task  are  greater  in  this  class  of  work 
than  in  routine  work;  and  in  man}-  such  cases  it  is  better,  ow- 
ing to  the  increased  difficulties,  that  the  workman  should  feel 
sure  at  least  of  his  regular  day's  rate  which  is  secured  him  by 
]\Ir.  Gantt's  system  in  case  he  falls  short  of  the  full  task."  ^ 

II.  Because  of  its  exacting  nature  the  system  has  a  hmited 
range  of  apphcabiht}^  in  industry.  It  can  succeed  only  where 
first-class  operatives  work  under  conditions  controlled  b}^ 
scientific  management.  The  author  of  the  plan  very  candidly 
recognized  these  requirements.  He  never  recommended  the 
plan  as  one  suitable  for  apphcation  to  all  t^-pes  of  work  through- 
out an  establishment.  To  him  each  of  the  major  plans  of 
wage  payment  had  its  pecuhar  advantages,  and  its  special  field 
of  application,  provided  always  that  a  definite  task  could  be 
assigned.  ''It  is  clear,"  he  says,  "that  in  carrjdng  out  the 
task  idea,  after  the  required  knowledge  has  been  obtained 
through  a  study  of  unit  times,  each  of  the  four  systems,  (a)  day 
work,  (b)  straight  piece  work,  (c)  task  work  with  a  bonus, 
and  (d)  differential  piece  work,  has  its  special  field  of  useful- 
ness, and  that  in  ever}-  large  establishment  doing  a  variet}'  of 
work  all  four  of  these  plans  can  and  should  be  used  at  the 
same  time."  -  In  the  establishments  with  which  Mr.  Taj'lor 
was  connected  three  or  four  wage  systems  were  maintained 
side  by  side. 

It  is  to  be  noted,  however,  that  the  basic  plan  of  a  differ- 
ential piece  rate  possesses  great  inherent  flexibilit3\  The 
larger  the  number  of  determinative  elements  there  are  entering 
into  the  fixing  of  a  wage,  the  more  flexibilit}^  a  plan  possesses, 
since  each  element  may  be  taken  at  a  higher  or  lower  point,  or 

1  Shop  Management,  X.  Y.,  1911,  pp.  78-79.  -  Ibid.,  p.  SO. 


27S      ADMIXISTRATIOX  OF  IXDUSTRIAL  ENTERPRISES 

may  be  given  a  greater  or  less  degree  of  weight  and  inclusive- 
ness.  In  the  day-rate  plan,  for  example,  we  can  distinguish  a 
certain  rate  of  pay  offered  for  time,  a  certain  range  of  talent 
or  performance  included  within  the  wage  class,  and  a  certain 
hberahty  or  the  reverse  in  making  promotions  into  and  out  of 
the  class.  There  are  also  the  efforts  of  the  administration  to 
improve  the  working  conditions,  and  the  pressm'e  exerted 
upon  the  men  by  foremanizing  methods.  The  Taylor  differ- 
ential piece  rate  possesses  all  but  the  first  of  these  elements, 
and  in  the  place  of  this  single  rate  based  upon  time,  it  has  two 
rates  based  upon  output.  The  basic  plan  of  a  differential 
piece  rate  permits  of  the  use  of  three  or  fom*  rates,  or  even 
more.  And  it  permits  of  a  gi-eater  or  less  spread  between 
them,  so  as  to  increase  or  decrease  at  will  the  culling  action  at 
^each  transitional  point. 
=9  The  Gantt  system.  —  The  system  sometimes  described  as 
''task  work  with  a  bonus  "  was  de^^ised  by  ^Ir.  H.  L.  Gantt, 
while  associated  with  ^Ir.  F.  W.  Taylor  at  the  works  of  the 
Bethlehem  Steel  Company.  It  is  based  on  the  Taylor  differ- 
ential piece-rate  system  and  is,  as  ^Ir.  Gantt  says,  ''As  far  as 
possible  removed  from  the  old-fashioned  method  of  fixing  piece 
rates  from  records  of  the  total  time  it  has  taken  to  do  a  job."  ^ 
Upon  the  basis  of  strictly  standarcUzed  shop  conditions 
[Nlr.  Gantt  sets  a  definite  daily  task  which  represents  a  first- 
class  performance.  'Tf  a  man  foUows  his  instructions,  and 
accompKshes  all  the  work  laid  out  for  him,  as  constituting  his 
proper  task  for  the  da}',  he  is  paid  a  definite  bonus  in  adchtion 
to  the  day  rate  which  he  always  gets.  If,  however,  at  the  end 
of  the  day,  he  has  failed  to  accomphsh  all  of  the  work  laid  out, 
he  does  not  get  his  bonus,  but  sunply  his  day  rate."  -  The 
pay  of  those  who  attain  or  excel  the  standard  consists,  then, 
of  the  day  rate  for  the  time  allowed  as  standard  for  the  task 
accomphshed,    plus   an   agreed   percentage  —  anj-where   from 

^  A  Bonus  S\-stem  for  Rewarding  Labor,  Trans.  Am.  Soc.  of   Mech. 
Eng.,  Vol.  23  (I'OOI),  p.  373.  -  Ibid.,  p.  342. 


THE  NEWER  WAGE  SYSTEMS  279 

20  to  50  per  cent  —  of  that  time  calculated  at  the  day  rate, 
added  as  a  bonus.  Let  us  assume  a  case  where  the  day  rate 
is  25  cents  per  hour,  and  the  bonus  is  20  per  cent  of  the  stand- 
ard time.  If  a  workman  completed  a  5  hour  job  in  6  hours, 
he  would  receive  the  day  rate  for  6  hours,  or  $1.50  for  the  job, 
which  is  at  the  rate  of  $2.00  per  day.  If  he  did  the  work  in 
5  hours  he  would  receive  the  day  rate  for  5  hours,  plus  20  per 
cent  of  5  hours,  or  a  total  wage  of  6  hours,  or  $1.50  for  the  job, 
which  is  at  the  rate  of  $2.40  for  the  day.  If  he  did  the  work 
in  4  hours  he  would  still  receive  the  day  rate  for  5  hours,  plus 
20  per  cent  of  5  hours,  or  the  hourly  rate  for  6  hours,  making 
$1.50  for  the  job,  or  at  the  rate  of  $3.00  per  day.  The  system 
is  obviously  a  day  wage  for  sub-standard  workers,  and  a  piece 
rate  for  men  who  are  standard  or  better.  The  difference 
between  the  Taylor  and  Gantt  systems  is  that  for  sub-standard 
workers  the  Gantt  system  guarantees  day  wages,  while  the 
Taylor  system  does  not ;  and  that  for  workers  who  are  standard 
or  better  the  Taylor  system  pays  by  the  piece,  while  the  Gantt 
system  pays  in  terms  of  time  calculated  at  day-wage  rates. 

]\Ir.  Gantt  considers  the  guarantee  of  the  day  wage  essential, 
because  it  reassures  a  labor  force  and  facihtates  the  transfer  of 
a  shop  onto  scientifically  set  piece  rates.  He  says,  ''When 
it  is  realized  that  proper  piece  work  will,  in  many  cases,  pro- 
duce at  least  three  or  four  times  as  large  an  output  as  ordinary 
day  w^ork,  the  difficulties  of  putting  directly  on  piece  work 
men  who  have  been  accustomed  to  doing  work  in  their  own  way 
and  in  their  own  time  would  seem  to  be,  and  generally  is, 
extremely  difficult.  While  the  men  who  are  on  day  work 
usually  realize  that  they  are  not  doing  all  they  can  do,  when 
they  are  told  that  it  is  possible  to  do  three  or  four  times  as 
much  as  they  are  doing  they  simply  do  not  believe  it,  and  it  is 
very  difficult  to  make  them  accept,  as  just,  a  piece  rate  founded 
on  this  basis;  but  a  reward  in  addition  to  their  day  rate  con- 
stantly held  before  them  will  finally  be  striven  for  by  some 
one,  and  when  one  has  obtained  it  others  will  try  for  it.     In 


280     ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

other  words,  if  the  instruction  card  is  made  out,  and  a  substan- 
tial bonus  offered,  time  will  do  the  rest."  ^ 


goo 

500 

Hours 
12         3          4         5         6         7 

goo 
yoo 
500 
500 
400 
300 

200 

50 
|00 

\ 

\ 

c» 

S 

, 

^ 
^ 

35 

•9 

300 

200 

50 
|00 

^* 

<V 

2.40 

Cost  p 

erma 

e  or  jo 

) 

1.25 

_ 

I         2         3     ,4         5         6         7         i 

Hours 

J 

Fig.  40.     Wage.?  and  Co.sts  under  the  Gaxtt  Boxus  Plan 

Wages  per  day. 

Direct-labor  costs  per  piece  or  job. 

Standard  time  5  hours. 

Day  rate  25  cents  per  hour. 

Bonus  20  per  cent  of  standard  time. 

As  ]\Ir.  Gantt  pa^^s  a  liberal  bonus  for  satisfactory-  perform- 
ance, there  is  a  culhng  action  just  at  the  point  of  attaining  the 

^  A  Bonus  System  for  Rewarding  Labor,  Trans.  Am.  Soc.  of   Mech. 
Eng.,  Vol.  23  (1901),  p.  343. 


THE  NEWER  WAGE  SYSTEMS  281 

standard,  though  it  is  not  as  severe  as  under  the  Taylor  S3'S- 
tem.  To  prevent  hardship,  however,  Mr.  Gantt  provides 
that  only  those  who  are  properly  instructed,  and  likely  to 
succeed,  shall  be  allowed  to  try  for  the  bonus.  The  workmen 
who  remain  on  day  wages  are  looked  upon  as  overpaid  during 
a  temporary  apprenticeship,  pending  their  attainment  of  the 
standard.  As  the  guarantee  of  da}^  wages  weakens  the  cull- 
ing action  and  reduces  the  strength  of  the  motive  for  at- 
taining the  standard,  Mr.  Gantt  employs  various  agencies  to 
bring  a  shop  up  to  the  standard.  To  arouse  the  foremen  to 
assist  heartily,  a  bonus  is  paid  them  proportional  to  the 
number  of  their  men  who  attain  standard;  and  there  is  be- 
sides an  extra  remuneration  when  a  shop  is  composed  entirely 
of  bonus  workmen.  It  is  to  be  noticed  that  this  bonus  is 
upon  the  proportion  of  the  men  who  succeed  in  attaining 
standard,  and  not  upon  the  earnings  of  the  men.  The  fore- 
men are  encouraged  to  aid  the  men  to  get  into  the  bonus  class, 
but  not  to  drive  them  beyond  what  the  management  has  set  as 
a  fair  day's  work.  A  bonus  society  is  sometimes  organized 
among  standard  workers,  to  confirm  them  in  well  doing  by 
means  of  social  distinction.  For  those  whose  efforts  demonstrate 
their  unfitness,  transfers  to  other  kinds  of  work  are  arranged. 

The  Emerson  efficiency  wage.  —  The  system  devised  by 
Mr.  Harrington  Emerson  is  like  the  Taylor  and  Gantt  systems 
in  that  shop  conditions  are  thoroughly  standardized,  that  the 
tasks  are  carefully  set  by  time  studies,  and  that  these  tasks 
constitute,  when  performed  in  standard  time,  about  all  that  a 
first-class  man  should  do.  It  further  resembles  them  in  that 
the  worker  is  paid  for  all  the  time  he  saves  above  the  standard, 
and  that  the  assistance  of  counselors  and  production  experts  is 
provided  for  the  v/orkers.  It  agrees  with  the  Gantt  system  in 
guaranteeing  day  wages  as  long  as  a  man  is  retained,  regardless 
of  performance.  The  distinctive  feature  of  the  plan  is  the 
gradual  nature  of  the  transition  effected  from  the  day  rate  to 
the  piece  rate  as  performance  improves. 


282      ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

Remuneration  is  on  the  basis  of  efficiency.  A  workman's 
efficiency  is  the  ratio  between  the  time  set  and  the  time  he  has 
taken;  that  is  to  sa}^  between  the  standard  hours  of  his  ffiiished 
jobs  and  the  clock  hours  he  has  consumed.  If  in  a  month  a 
man  finishes  jobs  having  a  total  standard  tune  of  180  hours, 
and  has  worked  240  hours,  his  efficiency  is  -g-f-o";  or  ij  ^^  '^^  per 
cent.     If  he  has  in  240  hours  finished  jobs  the  standard  times 


■Time  taken  per  job  cr  piece 


f 


Efficiency  in  percentages 

100%  90%  «.7%^ 


T\me_ased^ 


Time  saved 

(Piepe^raies) 
Time  used 


Day  wages 


Fig.  41.     Composition  of  the  Emerson  Efficiency  Wage  Plan 

of  which  total  300  hours,  his  efficiency  is  W%,  or  |-,  or  125  per 
cent. 

The  accomphshment  of  the  task  in  standard  time  is  100  per 
cent  efficienc3\  For  men  who  are  100  per  cent  efficient,  the 
wage  is  the  rate  for  the  allowed  time  (wliich  in  this  case  is  the 
same  as  the  time  used)  plus  20  per  cent  of  the  time  used. 
The  bonus  begins  at  66.7  per  cent  efficienc3\  For  slower  per- 
formance than  this  day  wages  only  are  paid.  A  man  who 
cannot  attain  80  per  cent  efficiency  is  deemed  to  be  engaged 
on  the  wrong  kind  of  work,  and  is  changed  as  soon  as  oppor- 
tunity permits.     Between  66.7  per  cent  and  100  per  cent  effi- 


THE  NEWER  WAGE  SYSTEMS  283 

ciency  the  worker  receives,  in  addition  to  his  day  wages,  a 
percentage  bonus  calculated  on  the  wages  of  the  time  used, 
which  increases  gradually  to  20  per  cent  as  an  efficiency  of  100 
per  cent  is  approached.  These  bonuses  of  the  approach  to  the 
standard  are  calculated  from  the  positions  of  a  certain  para- 
bohc  curve  connecting  the  day-wage  line  at  66.7  per  cent  effi- 
ciency with  the  point  of  120  per  cent  of  day  wages  which  is  the 
remuneration  for  100  per  cent  efficiency. 

To  better  reveal  the  construction  of  the  Emerson  wage  we 
insert  a  special  chart  showing  the  change  which  takes  place 
in  remuneration  as  a  given  job  is  done  in  different  times. 

The  simplified  bonus  table  which  is  used  in  practice,  for  cal- 
culating the  parabola  values,  groups  the  efficiency  percentages 
upon  whole  numbers  of  bonus  percentage. 

Simplified  Bonus  Table 


Percentage  of 

Percentage 

Percentage  of 

Percentage 

Efficiency 

of  Bonus 

Efficiency 

of  Bonus 

67.00  to  71.09 

0.25 

89.40  to  90.49 

10. 

71.10  "  73.09 

0.5 

90.50  "  91.49 

11. 

73.10  "  75.69 

1. 

91.50  "  92.49 

12. 

75.70  "  78.29 

2. 

92.50  "  93.49 

13. 

78.30  "  80.39 

3. 

93.50  "  94.49 

14. 

80.40  "  82.29 

4. 

94.50  ''  95.49 

15. 

82.30  "  83.89 

5. 

95.50  "  96.49 

16. 

83.90  "  85.39 

6. 

96.50  "  97.49 

17. 

85.40  ''  86.79 

7. 

97.50  "  98.49 

18. 

86.80  "  88.09 

8. 

98.50  ''  99.49 

19. 

88.10  "  89.39 

9. 

99.50  and  over 

20. 

It  will  be  noticed  that  above  90  per  cent  efficiency  the  bonus 
increases  one  per  cent  for  each  increase  of  one  per  cent  in 
efficiency,  until  100  per  cent  is  reached.  For  all  efficiencies 
above  100  per  cent  the  workman  receives  the  wages  of  the  time 


284     ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

worked  and  of  the  time  saved  —  that  is  to  say  piece  rates  — 
pkis  20  per  cent  of  the  wages  of  the  time  worked. 

To  smmnarize: 

Efficiencies  66.7  per  cent  and  less  receive  time  worked. 
Efficiencies  67  per  cent  to  100  per  cent  receive  the  tune  worked 

phis  parabola  bonuses. 
Efficiencies  100  per  cent   and   over   receive   time   worked   plus 

time  saved  plus  20  per  cent  of  time  worked. 

Advantages.  —  I.  The  gradual  increase  of  the  bonus  above 
da}'  wages  from  66.7  per  cent  to  100  per  cent  efficiency,  and 
the  gradual  decrease  of  the  bonus  beyond  100  per  cent  down  to 
piece  rates,  makes  an  easy  transition  from  the  day  rate  to  the 
piece  rate.  The  learner  is  encouraged  to  strive  and  to  learn 
b}'  gradually  increasing  rates  of  remuneration.  In  comparison 
with  the  Taj'lor  and  Gantt  systems,  the  philosophy  of  this 
system  is  less  that  of  culling  for  native  capacity,  and  more 
that  of  bringing  men  up  to  the  standard  by  persistent  effort, 
patient  instruction,  and  growmg  reward.  Those  who  fail  to 
reach  the  standard  are  not  discouraged  by  being  thrown  back 
upon  the  flat  day  rate.  ''It  is  discouraging  to  workmen,"  says 
Air.  Emerson,  ''to  expert,  and  to  emploj'er  to  be  wrecked  in 
full  flight  by  hard  iron  from  the  foundry,  by  variable  speed  in 
the  engine,  by  broken  belt  on  mam  shaft,  by  any  unforeseen 
and  unforeseeable  delay,  and  in  such  cases  the  cm've  back  to 
day  rate  prevents  much  trouble.''  ^ 

II.  Since  there  is  not  at  any  point  a  gi'eat  drop  in  remu- 
neration, by  reason  of  barely  failing  to  attain  some  specific 
standard  of  performance,  the  question  of  the  exact  degree  of 
hberaht}'  employed  in  setting  the  time  base,  and  the  matter 
of  the  accm'acy  used  in  measuring  those  jobs  wliich  are  on  the 
edge  of  the  standard,  is  not  of  so  great  importance  as  in  shops 
with  the  Taylor  or  Gantt  systems. 

1  Trans,  of  Am.  Soc.  of  Mech.  Eng.,  Vol.  25  (1903),  p.  SI. 


THE  NEWER  WAGE  SYSTEMS 


285 


III.  The  percentage  of  efficiency  is  not  calculated  in  prac- 
tice for  each  job,  but  for  a  period  of  from  two  weeks  to  a  month. 
While  day  wages  are  paid  weekly,  the  bonus  may  be  calculated 


goo 

GOO 

1500 

000 

Hours 
12        3         4        5        6        7 

300 
yoo 
500 
goo 
100 
300 

200 
]00 

10 

l\ 

\ 

\ 

er. 

4^ 

•J 
1 

* 

i 

35 

V 

3.74 

?  <1irt 

6 

200 
[00 

lAO 

2.10 

2.01 

TB    " 

Cos- 

1.30 

1.35 

ace  or, 

1.40 

ob 

MS 

Hso 

1.5a 

I.T6 

I         2         3     ^4        5         6        7        < 

Hours 

\ 

Fig.  42.    Wages  and  Costs  under  the  Emerson  Efficiency  Plan 

Wages  per  day. 

Direct-labor  cost  per  day  or  job. 

Standard  time  5  horns. 

Day  rate  25  cents  per  hour. 

and  distributed  every  other  week  or  every  month.  This  saves 
paj-roll  expense.  It  also  prevents  the  workman  from  beating 
the  sj'stem  b}^  resting  upon  day  wages  after  a  raid  on  the 


2S6      ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

premium.  It  causes  a  shop  to  be  somewhat  less  on  edge  with 
reference  to  the  attainment  of  the  exact  standard  on  each  job. 
Accurate  labor  costs  are,  of  course,  distributed  to  each  job 
b\'  the  cost  keepers. 

The  law  of  labor  response  to  variation  of  wage.  —  The 
systems  to  which  consideration  has  been  given  are  attempts  to 
pass  from  ordinaiy  wage  levels  to  higher  levels  which  will  bal- 
ance the  labor  market  for  extra-normal  perfoiTuance.  It  may 
very  weU  be  that  experiments  ^-ill  eventually  show  that  definite 
relations  tend  to  exist,  for  any  given  time  and  place,  between 
the  price  of  an  ordinaiy  day's  work  and  the  price  of  various 
d^rees  of  extra  sen'ice.  ]Mr.  Taylor  has  said,  "The  writer 
has  found,  after  making  many  mistakes  above  and  below  the 
proper  mark,  that  to  get  the  maximum  output  for  ordinary*  shop 
work  requiring  neither  especial  brains,  yevy  close  apphcation, 
skill,  nor  extra  hard  work,  such,  for  instance,  as  the  more 
ordinarv-  kinds  of  routine  machine  shop  work,  it  is  necessary' 
to  pay  about  30  per  cent  more  than  the  average.  For  ordinary- 
day  labor  requiring  httle  brains  or  special  skill,  but  calling  for 
strength,  severe  bodily  exertion,  and  fatigue,  it  is  necessan.- 
to  pay  from  .50  per  cent  to  60  per  cent  above  the  average.  For 
work  requiring  special  skiU  or  brains,  coupled  with  close  apph- 
cation, but  without  severe  bodily  exertion,  such  as  the  more 
difficult  and  dehcate  machinist's  work,  from  70  per  cent  to 
80  per  cent  beyond  the  average.  And  for  work  requiring  sldU, 
brains,  close  apphcation,  strength,  and  severe  bodily  exertion, 
such,  for  instance,  as  that  involved  in  operating  a  well-run 
steam  hammer  doing  miscellaneous  work,  from  SO  per  cent 
to  100  per  cent  beyond  the  average.''  ^ 

On  the  same  point  ]Mr.  Emerson  gives  us  somewhat  difiterent 
details.  ''We  find,"  he  says,  ''we  can  double  a  AO  per  cent 
efficiency  by  pacing  a  bonus  of  3.2.5  per  cent,  that  we  can  double 
a  -45  per  cent  efficiency  by  paying  a  bonus  of  10  per  cent,  that 
we  can  double  a  50  per  cent  efficiency  by  pa^-ing  a  bonus  of 
1  Shop  Management,  X.  Y.,  1911,  p.  26. 


THE  NEWER  WAGE  SYSTEMS  287 

20  per  cent,  and  that  we  can  double  a  60  per  cent  efficiency 
by  paying  a  bonus  of  40  per  cent."  ^ 

The  question  of  distributive  justice.  —  The  various  wage 
systems  which  have  been  reviewed  reveal  two  chief  purposes: 
(a)  to  offer  an  increase  of  wages  to  the  employee  in  exchange 
for  a  better  performance  and  (6)  to  reduce  costs  to  the  employer 
as  the  reward  for  better  management.  Since  an  increase  in 
efficiency  produces  an  extra  sum  of  profit,  it  is  easy  to  get  the 
idea  that  the  problem  of  devising  a  satisfactory  wage  plan  is 
the  problem  of  making  some  equitable  division  of  this  profit. 
Mr.  J.  M.  Dodge  has  said  —  and  claimed  the  endorsement  of 
Mr.  F.  W.  Taylor  in  saying  it  ^  —  that  the  aim  of  the  leaders 
of  scientific  management  has  been  so  to  divide  between  wages 
and  profits  any  gain  which  may  be  made  in  earnmgs  that  the 
previously  existing  proportions  between  these  two  shares  shall 
remain  undisturbed.  If  we  are  entitled  to  interpret  this  state- 
ment strictly,  the  meaning  of  it  is  that,  if  wages  have  been 
$100,000  and  profits  $20,000,  and  if  net  earnings  are  increased 
by  $50,000,  the  added  sum  should  be  divided  $41,667  to  wages 
and  $8,333  to  profits;  that  is  to  say,  each  should  be  increased 
by  41  f  per  cent.  This  may  appear  to  be  a  neutral  position 
with  reference  to  the  conflicting  claims  of  labor  and  capital,  but 
in  reality  it  is  not  so,  unless  the  fair  market  values  of  the  sacri- 
fices made  by  the  men  and  the  management  in  attaining  the 
increased  profit  happen  to  fall  into  the  proportion  which  pre- 
viously existed  between  wages  and  profits.  It  should  be  under- 
stood that  the  bonus  and  premium  and  differential  piece-rate 
plans  of  paying  wages  are  not  attempts  to  put  upon  the  worker 
any  portion  of  the  hazard  of  the  uncertain  relation  between 
costs  and  prices,  and  so  inaugurate  a  new  form  of  profit  shar- 
ing.     They  are   simply  efforts  to  find   a  workable  relation 

^  Harrington  Emerson,  A  Comparative  Study  of  Wage  and  Bonus  Sys- 
tems, N.  Y.,  The  Emerson  Co.,  1912,  p.  36.  See  further,  H.  L.  Gantt, 
Work,  Wages,  and  Profits,  N.  Y.,  1910,  pp.  39-40. 

2  Compare  page  274,  note. 


28S      ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

between  the  current  wages  which  pay  for  ordinan-  efforts, 
and  the  extra  remuneration  which  will  adeciuately  pay  for 
extra  labor  ser\-ice. 

The  true  problem  of  wages  under  scientific  management,  or 
under  any  other  t\TDe  of  management,  is  not  to  di\'ide  a  profit, 
but  to  find  the  levels  of  remuneration  which  will  ensure  the 
necessary-  cooperation  of  operatives  and  staff  workers,  while 
yet  offering  to  capital  sufficient  interest  and  profits  to  ensure 
its  cooperation.  If  there  is  any  siu'plus  beyond  these  require- 
ments it  will  be  left  with  the  entrepreneur  or  final  risk-taker, 
pending  such  an  increase  of  competition  between  entrepre- 
nem-s  as  will  hand  it  over  to  the  pubhc,  in  the  form  of  lower 
prices.  There  is  no  logical  process,  nor  abstract  principle,  nor 
fixed  relation  of  wages  to  profits,  available  for  determining 
what  fair  wages  or  workable  wage  levels  are.  Experiment 
with  supply  and  demand  is  the  sole  original  source  of  infor- 
mation in  an  industrial  society  organized  imder  the  system 
of  free  competition.  Enough  must  be  paid  the  laborers  to 
ensure  the  necessary-  response  in  numbers,  in  native  talent,  in 
energ\',  and  in  hearty  cooperation.  All  that  administrative 
effort  can  do  is  to  make  more  definite  the  terms  of  the  wage 
problem  by  dispensing  with  all  ambiguities  as  to  the  condi- 
tions, as  to  the  talent  required,  and  as  to  the  nature  of  the  task; 
and  thus  by  disposing  of  all  collateral  issues,  facihtate  the 
focusing  of  supply  and  demand  upon  the  crux  of  the  question, 
namely,  the  relative  value  of  a  imit  of  muscular  and  nen'ous 
energ\'  expended  in  labor,  in  comparison  with  a  imit  of  man- 
agerial brain  power,  and  a  imit  of  seff-denial  and  ner\'Ous 
tension  involved  in  sa^^ing  and  risking  capital. 

The  wages  of  contentment.  —  The  basic  conception  of  a 
scientific  wage  is  fairness.  The  concept  of  what  is  fair  blos- 
soms out  of  that  which  is  usual,  cm-rent,  and  customary.  It  is 
a  growth  fed  by  innimierable  experiences  in  social  adjustment 
too  complex  for  logical  analysis  to  foUow,  and  being  constantly 
corrected  by  allowances  for  the  new  productive  power  acquired 


THE  NEWER  WAGE  SYSTEMS  289 

by  industry.  The  idea  of  a  fair  wage  is  not  a  sharp  definition 
but  a  general  impression.  The  general  range  is  sensed;  the 
exact  point  is  never  discovered.  It  is  the  recognition  of  a 
tendency  to  which  individual  cases  conform  but  approximately. 
The  practical  test  of  fairness  is  contentment;  contentment 
of  wage  earners,  of  capitalists,  of  managers,  and  of  the  general 
public.  The  value  of  contentment  as  a  test  of  equilibrium 
has  been  emphasized  again  and  again  by  the  advocates  of 
scientific  management  as  they  have  pointed  out  how  indis- 
pensable is  the  hearty  cooperation  of  the  employee.  The  very 
delicacy  of  the  instrumentalities  and  the  exactness  of  the 
coordination  involved  in  attaining  new  levels  of  efficiency  in 
industry  constitute  increasing  hostages  to  the  laborer,  ensuring 
to  hun  fair  treatment.  To  pay  less  than  is  felt  to  be  fair 
means  that,  while  the  muscle  may  function,  the  mind  will  be 
alienated,  and  the  spirit  will  fail.  To  pay  more  means  to 
make  a  gift,  a  thing  which  may  be  desirable  enough  in  itself, 
but  which  cannot  be  looked  upon  as  a  permanent  feature  of 
any  administrative  system  subject  to  competition,  except  in 
so  far  as  gifts  take  the  form  of  welfare  features  and  idealistic 
experiments  which  elevate  the  conception  of  what  is  decent 
and  proper  in  industry,  and  so  finally  raise  the  entire  plane  of 
competition.  Apart  from  this  reaction  of  those  exceptional 
cases  which  mark  the  frontier  of  upward  striving,  upon  the 
general  custom,  competition  between  producers  will  at  last 
give  whatever  residual  advantage  may  remain,  after  the  fac- 
tors of  production  have  asserted  themselves  normalh^,  to  the 
consuming  public  in  the  form  of  lower  prices.  The  consuming 
pubhc  is,  however,  chiefly  composed  of  the  laboring  classes. 

BIBLIOGRAPHY 
Going,  Chas.  B.:    Principles  of  Industrial  Engineering,  X.  Y.,  1911.    Ch. 

VII,  The  Primary  Wage  Systems;   Ch.  VHI,  Labor:   Philosophies  of 

Management. 
Kimball,  D.  S.:    Principles  of  Industrial  Organization,  N.  Y.,  1913.    Ch. 

XI,  The  Compensation  of  Labor. 


290      ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

Ennis,  Wm.  D.:  Worki  Management.  X.  Y.,  1911.    Ch.  R'.  Labor. 
Gantt,  H.  L.:   Work.  Wages,  and  Profits,  N.  Y.,  1910. 
A  Comparative  Study  of  Wage  and  Bonus  Systems,  The  Emerson  Com- 
pany. X.  Y.,  1912. 
Kershaw.  J.  B.  C:  Copartnership  and  Profit  Sharing  as  a  Solution  for  the 

Wages  Problem,  EngLaeering  Mag..  Sept.  1912. 
Bender,  Carl:   Systems  of  Wages  and  Their  Influence  on  Efficiency,  Engi- 
neering Mag..  Deo.  190S. 
United  States   Commissioner  of   Labor,  Regulation  and    Restriction  of 

Output,  Washington.  D.  C  1904. 
National  Civic  Federation,  Weh'are  Dept.,  Profit  Sharing  b\-  American 

Employers,  X.  Y.,  1916. 
Transactions  of  the  American  Society  of  Me^ht:::::!  Engineers: 
Kent,  Wm.:  A  Problem  in  Profit  Sharing,  1S>7,  Xo.  2o6. 
Towne.  H.  R.:   Gain  Sharing.  1SS9.  Xo.  341. 

Halsey,  F.  A. :  The  Premium  Plan  for  Paying  for  Labor,  1891.  Xo.  449. 
Taylor,  F.  W.:   A  Piece-rate  System,  1S95,  Xo.  647. 
Gantt,  H.  L.:   A  Bonus  System  for  Rewarding  Labor.  1902,  Xo.  928. 
Richards,  Frank :  Gift  Propositions  for  Paying  Workers,  1903,  Xo.  965. 
Taylor,  F.  W.:   Shop  Management,  1903,  No.  1003. 
Richards.   Frank:    Is  An\-thing   the  Matter  with  Piece  Work?  1904, 
Xo.  1012. 


CHAPTER  XV 
WELFARE    WORK 

Welfare  work  and  betterment  work  are  two  titles  used  to 
designate  the  voluntary  efforts  of  employers  to  improve  the 
condition  of  their  employees.  It  has  to  do  Avith  benefits  which 
are  over  and  above  what  the  law  requires  or  the  necessities  of 
competition  exact. 

Origins.  —  In  so  far  as  welfare  work  can  be  traced  to  a  defi- 
nite origin,  it  may  be  said  to  have  had  its  rise  in  the  ingenious 
and  successful  efforts  made  by  Robert  Owen,  in  the  first  quarter 
of  the  nineteenth  centurj-,  to  improve  the  conditions  of  his 
employees  in  the  cotton  mills  of  New  Lanark,  Scotland.  By 
way  of  doing  honor  to  the  extraordinary  energy  of  this  pioneer 
in  the  evolution  of  the  modern  type  of  industrial  management 
let  us  quote  a  couple  of  paragraphs  indicating  his  philosophy 
and  his  achievements. 

''He  tells,  in  his  autobiography,  with  what  enormous  diffi- 
culties he  had  to  cope  when  he  purchased  the  property. 
Women  and  children  were  employed  under  conditions  which 
debased  both  mind  and  morals;  drunkenness  and  ignorance, 
filth  and  inmioralit}^,  were  the  characteristics  of  the  population. 
Owen  believed,  however,  in  the  omnipotent  effect  of  circum- 
stance in  molding  character.  He,  therefore,  set  himself  to  work 
out  reform  on  this  principle. 

''Drunkenness  was  discountenanced  by  the  introduction  of 
resorts  where  the  workmen  could  find  both  pleasure  and  profit; 
immorality  was  checked  by  informal  lectures  setting  forth 
its  practical  evils;    the  emplojTnent  of  young  children  was 

291 


292      ADMIXISTRATION  OF  IXDUSTRIAL  ENTERPRISES 

discontinued;  the  homes  of  the  people  were  materially  im- 
proved; good,  honest  provisions  were  supplied  at  cost  price; 
children's  schools  were  started;  and  insurance  funds  agamst 
old  age  and  iUness  were  not  forgotten.''  ^ 

The  influence   of  the  modem  executive.  —  ^lore  broadly 
considered,  the  movement  among  employers  to  improve  the 
conditions  of  their  workmen,  by  their  own  efforts,  and  without 
calling  upon  the  state  for  interfering  legislation,  owes  its  begin- 
ning to  no  one  man.     It  is  the  revolt  of  men  of  affairs,  with 
somewhat  better  education  in  ph^^siolog}-  and  psycholog>^  than 
their   predecessors,    against    the   narrow   utihtarianism   which 
characterized  the  early  development  of  the  factory  system.     It 
marks  the  passing  of  estabhsliments  from  the  control  of  the 
harsh  men  of  combative  type  who  fought  their  way  up  from 
the  ranks  mto  administrative  circles  too  late  to  learn  the  art, 
into  the  hands  of  men  trained  for  administration,  capable  of 
broad  views,  and  understanding  then-  responsibiUties.     It  is  the 
natural  endeavor  of  executives,  who  know  something  of  soci- 
olog^^,  and  desire  to  be  something  besides  money  makers,  to  as- 
sist those  within  reach  of  their  influence  to  attain  good  health 
and  efficienc}',  and  to  enjo}^  beautiful  things  and  experience  hu- 
man fellowship.     The  movement  is  eminently  practical  in  its 
origin:   it  is  a  business  man's  affair,  owing  little  to  professional 
reformers,  being  entirely  distinct  from  charity  and  penology',  and 
allowing  small  mfluence  to  broad  theories  and  sentimentality. 
On  its  lowest  plane,  weffare  work  is  the  act  of  conforming  to 
the   laws   of   productive   efficiency  in   some   uncommon   waj', 
which  not  only  pays  the  employer  in  profits,  but  which  makes 
work  and  the  working  environment  seem  more  attractive  to 
the  wage  earner.     In  this  sense,  it  may  be  conforming  to  some 
rule  of  health,  or  observing  some  law  of  attention  and  interest 
or  of  fatigue,  or  drawmg  upon  some  subtle  spring  of  loyalty 
and  enthusiasm. 

Just  now.  in  America,  one  object   of  the  movement  is  to 
1  The  Encyclopedia  of  Social  Reform,  X.  Y.,  190S,  p.  859. 


WELFARE  WORK  293 

undo  the  work  which  ''big  business"  has  done  in  separating 
men  from  each  other  in  work  and  rank  and  interests  and  stand- 
ards of  hfe,  and  to  do  so  by  reasonably  systematic  and  persist- 
ent efforts  to  get  together. 

A  phase  of  general  progress.  —  As  the  per  capita  pro- 
duction of  wealth  of  the  country  increases,  the  conditions  of 
life  of  the  people  can  be  improved.  We  can  enjoy  better 
homes  and  schools,  better  food  and  clothing,  better  reading 
and  recreation,  because  there  are  more  of  the  good  things  of 
life  available.  It  is  reasonable  that,  as  other  classes  elabo- 
rate the  arts  of  hving,  the  working  classes  should  rise  in  the 
scale  of  comfort  as  well.  And  since  these  classes  spend  so  large 
a  part  of  their  waking  hours  in  work  places,  it  is  natural  that 
this  advancement  should  show  not  only  in  the  family  life,  but 
in  a  progressive  improvement  of  the  conditions  of  the  working 
day. 

The  general  movement  is  at  first  a  thing  of  sporadic  signs  — 
an  experiment  in  one  plant,  a  new  feature  in  another  —  but 
becoming  more  frequent  and  more  consistent  in  type.  In 
their  initial  stage  these  improvements  in  comfort  seem  to  be 
non-economic,  or  at  least  extra-competitive,  in  character. 
They  are  viewed  with  suspicion  as  philanthropies,  although 
strenuously  defended  as  ''good  business  "  by  their  sponsors.  It 
is  not  observed  that  they  are  the  advance  heralds  of  a  new 
equilibrium  between  production  and  consumption.  It  is  only 
when  the  experiments  multiply,  and  persist  along  certain 
lines,  and  the  new  comforts  become  generally  disseminated, 
and  are  more  and  more  forced  upon  backward  employers  as 
a  part  of  the  plane  of  competition  —  that  is  to  say,  as  some- 
thing expected  as  customary  or  standard  —  that  we  are  able 
to  recognize  them  as  legitimate  signs  of  the  nation's  increasing 
wealth  and  comfort. 

The  geography  of  the  movement.  —  The  chief  development 
of  welfare  work  has  been  in  France,  Belgium,  Holland,  Switzer- 
land, and  the  United  States.     The  movement  is  not  prominent 


294     ADMIXISTRATION  OF  INDUSTRIAL  ENTERPRISES 

in  England,  although  there  are  in  that  coiintiy  such  splendid 
examples  of  it  as  Lever  Brothers  Ltd.  of  Port  Sunhght.  and 
Cadbuiy  Brothers  Ltd.  of  Bourneville;  and  although  there  is 
also  in  England  the  ''garden  city  movement,"  which  is  stronglj^ 
influencing  popular  conceptions  of  comfort.  The  reason  for 
this  lack  in  England  is  that  the  extreme  consen^atism  of  the 
Enghsh  employing  classes  has  forced  the  amehoration  of  the 
conditions  of  the  wage  earners  to  come  chiefly  as  the  result 
of  industrial  warfare,  carried  on  by  the  trades  miions.  Nor 
has  welfare  work  been  extensively  carried  on  in  Germany, 
in  spite  of  such  exceptions  as  the  Krupps.  And  this  is  to  be 
accomited  for  by  the  all-embracing  influence  of  state-sociahsm, 
wliich  causes  reforms  to  come  cliiefly  through  the  force  of  law 
and  by  the  action  of  goverimiental  agencies.  In  America, 
the  land  of  private  enterprise,  welfare  work  has  fomid  its  most 
congenial  home.  Here  there  are  ample  resom'ces,  a  favoring 
theory  of  democratic  equaht}^,  a  strenuous  habit  of  putting 
projects  through  to  the  limit,  a  darmg  ideahsm  among  business 
men,  and  a  well  educated  public  opinion.  Welfare  work  may 
be  looked  upon  as  the  t}i)ical  American  way  of  making  socio- 
economic adjustments  between  the  mdustrial  classes,  and  of 
discouragmg  the  importation  of  Em'opean  trade  warfare  and 
European  state-initiative. 

What  it  comprises.  —  With  reference  to  the  ph^^sical  con- 
ditions of  the  wage  earners,  welfare  work  mcludes  such  things 
as  good  air  and  hght,  lockers  for  clotlnng,  dressmg  rooms,  baths, 
the  provision  of  wholesome  food  for  the  middaj^  meal,  rest 
rooms  for  women,  medical  examinations,  first  aid  to  the  mjured, 
free  hospital  beds,  visiting  nurses,  opportunities  for  organized 
athletics,  and*  vacations  with  pay.  Under  the  head  of  eco- 
nomic agencies  it  includes  such  things  as  shop  schools,  technical 
lectures,  and  the  circulation  of  technical  literature;  prizes 
and  bonuses  for  suggestions,  and  for  length  and  regularity  of 
service;  sickness,  accident,  and  old-age  pensions;  unproved 
housing  facihties,  and  agencies  for  the  promotion   of   thrift. 


WELFARE  WORK  295 

Upon  general  moral  and  social  conditions  it  exerts  an  influence, 
not  only  through  the  above-mentioned  channels,  but  by  means 
of  amusement  facilities,  such  as  concerts  and  entertainments; 
by  clubs  and  societies;  through  the  influence  of  a  social  secre- 
tary; through  the  precautionary^  exclusion  of  undesirable  per- 
sons; and  through  the  agency  of  artistic  surroundings,  not 
onl}^  within  doors,  but  as  the  result  of  the  landscaping  of  the 
factory  grounds. 

With  so  wide  a  range  of  optional  directions  in  which  effort 
can  express  itself,  welfare  work  may  be  adapted  to  local  con- 
ditions, to  any  scale  of  expenditure,  and  to  the  pecuhar 
talents  and  interests  of  emploj^rs  and  employed.  This  variety, 
however,  has  interfered  with  the  recognition  of  underl}dng 
principles,  and  has  made  diflJcult  the  communication  of  the 
wisdom  of  experience  from  one  establishment  to  another.  As 
a  result  of  this,  the  period  of  experimentation  of  the  movement 
as  a  whole  has  been  unduly  prolonged. 

Let  us  choose  for  brief  consideration,  the  following  items: 
1,  factory  hygiene;  2,  housing;  3,  education;  4,  club  activities; 
5,  the  beautification  of  the  industrial  environment. 

Factory  hygiene  and  preventive  medicine.  —  The  recent 
popularity  of  the  ideal  of  Mens  sana  in  corpore  sano  may,  per- 
haps, be  partly  due  to  the  vogue  of  college  athletics.  It  is 
certainly  due  in  part  to  the  increased  activity  of  the  medical 
profession  in  spreading  knowledge  concerning  public  health. 
By  reason  of  the  evolution  of  the  building  trades,  and  the 
invention  of  improved  systems  of  heating,  lighting,  and  ventila- 
tion, it  has  become  possible  to  do  what  was  once  impossible,  in 
the  matter  of  providing  for  the  physical  comfort  of  emplo3'ees. 
Better  quarters  are  now  within  reach  without  increase  in 
cubic-foot  cost.  And  since  man-hour  rates  have  increased, 
the  law  of  profit  has  become  more  nearly  the  law  of  health. 

Dressing  rooms.  —  Toilet  rooms,  dressing  rooms,  and  lockers 
enable  a  force  to  keep  clean  and  to  wear  dry  clothes.  A  funda- 
mental manifestation  of  self-respect  is  cleanliness  of  body  and 


206      ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

neatness  of  dress.  Self-respect  is  a  valuable  characteristic  in 
an  employee,  for  it  sets  a  limit  of  decency  and  fairness  below 
which  his  actions  \Nill  not  be  allowed  to  go,  because  they  would 
not  be  worthy  of  himself.  It  is  no  longer  customary*  for  shop 
employees,  above  the  grade  of  imskilled  labor,  to  go  and  come 
on  the  street  in  work  clothes;  dressing  rooms,  lockers,  and  dry- 
ing racks  have,  therefore,  become  indispensable,  if  a  suj^erior 
persomiel  is  to  be  seciu-ed.  This  is  not  simply  a  manifesta- 
tion of  pride;  it  is  an  intelHgent  differentiation  between  the  cut 
and  materials  of  working  clothes  and  street  clothes. 

Rest  rooms.  —  A  rest  room  or  parlor  for  women,  and  a  read- 
ing room  or  game  room  for  men,  are  useful  installations  to 
pennit  the  employees  to  pass  the  rest  portion  of  the  noon  hoiu' 
imder  cover  in  bad  weather,  but  outside  of  the  work  rooms  wliile 
those  are  being  ventilated.  Such  facilities  give  a  touch  of 
home  to  a  plant.  They  are  especially  valuable  for  women, 
who  lack  the  endurance  and  regularity  of  health  of  men,  and 
who  are  more  subject  than  men  to  dizziDess.  fainting  sj^eUs, 
and  temporary-  coUapse  from  fatigue.  If  women  have  less 
dependable  health  than  men,  they  recover  more  reachly  from 
slight  illnesses  than  do  men,  if  prompt  attention  is  given  to 
theii-  condition. 

Baths.  —  The  installation  of  shower  baths  is  becoming  the 
accepted  thing  in  estabhshnients  where  the  occupation  is 
uncleanly,  as  in  cotton  and  woolen  manufactiu'e.  the  sorting 
of  rags  for  paper  stock,  stone  cutting,  the  gruiding  and  polish- 
ing of  metals,  the  handling  of  wool  or  hair,  and  hide  cleaning. 
It  is  even  more  important  in  chemical  works  where  poisonous 
dust  and  ftmies  are  generated,  or  in  any  manufacture  where 
lead  enters  as  a  component,  as  in  the  making  of  paint,  potterj-, 
and  plumbiDg  supphes,  or  the  manufacture  of  cut  glass. 

The  Walker  and  Pratt  Company  of  Boston  pro^ddes  a  daily 
shower  bath  for  foimdrjTQen.  and  the  Lowe  Brothers  Compam' 
of  Da3i:on  does  the  same  for  color  workers.  The  Sherwin- 
Wilhams  Paint  Company  of  Cleveland  requires   a  daily  shower 


WELFARE  WORK  297 

bath  for  the  men  in  the  dry-color  department,  and  provides 
daily  a  clean  suit  of  underwear  which  the  men  wear  during  the 
day,  changing  into  their  own  clothes  before  leaving  the  estab- 
lishment. Previous  to  the  adoption  of  this  rule,  20  per  cent 
of  this  force  was  ill,  and  the  average  service  in  the  department 
was  but  one  and  one-half  months.  Since  the  new  arrange- 
ments have  been  in  force,  illness  from  lead  poisoning  and  kin- 
dred diseases  has  become  practically  neghgible,  although  the 
personnel  of  the  department  is  now  permanent. 

A  portion  of  the  rules  posted  in  the  works  of  The  National 
Lead  Company  is  as  follows: 

1.  Respirators  must  always  be  worn  where  there  is  dust.  Keep 
THEM  CLEAN.     Shave  frequently  so  that  respirator  fits  snugly. 

2.  Washing.  Before  eating  and  before  leaving  factory  at  night,  em- 
ployees must  thoroughly  scrub  their  hands,  clean  their  finger  nails,  and 
biTish  their  teeth. 

3.  Clothes.  Employees  must  make  a  complete  change  of  clothing, 
including  hat  and  shoes,  upon  coming  to  work  and  again  at  the  close  of 
the  day's  work.    Working-clothes  must  not  be  worn  outside  the 

FACTORY    GROUNDS. 

4.  Baths  shall  be  taken  daily  (on  Company's  time)  before  changing 
into  street-clothes. 

5.  Complaints.  The  company  furnishes,  free  of  charge,  respirators, 
sponges,  tooth  and  nail  brushes,  soap,  towels,  and  individual  lockers, 
and  has  equipped  the  Plant  with  bathing  facilities  and  sanitary  devices. 
Any  failure  to  furnish  above  supplies  and  any  defect  in  the  operation 
or  sanitary  condition  of  the  machinery  or  equipment  of  the  factory 
observed  by  any  employee  shall  be  called  at  once  to  the  attention  of 
the  foreman  in  charge,  and  if  not  remedied  in  24  hours,  complaint 
shall  be  made  directly  to  the  superintendent. 

6.  Company's  Doctor.  Employees  shall  report  to  the  Company's 
Doctor  every  ailment,  no  matter  how  slight,  as  soon  as  discovered,  and 
shall  be  present  at  the  weekly  examination.  The  Company's  Doctor  will 
attend  to  employees  for  all  ailments  without  charge." 

Physical  examinations.  —  The  health  problem  is  being 
attacked  not  only  by  means  of  plant  hygiene  and  sanitary 
appliances,  but  by  precautionary  examinations,  visiting  nurses, 
and  hospital  facilities.     The  practice  of  making  a  thorough 


298      ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

physical  examination  of  applicants  by  a  physician  is  growing 
rapidly,  as  a  result  of  the  enactment  of  state  employer's  lia- 
biUty  laws;  the  object  being  to  avoid  the  risk  which  would  be 
incurred  by  employing  those  who  are  physically  unfit  for  their 
work.  The  results  to  be  expected  from  such  examinations 
may  be  illustrated  by  some  records  of  Sears,  Roebuck  and  Com- 
pany of  Chicago.^  Out  of  666  apphcants  in  a  certain  period, 
85  were  rejected  for  the  following  reasons: 

Anemia  and  chlorosis 12  Venereal  disease 7 

Active  tuberculosis 11  Hernia 4 

Suspicion  of  tuberculosis ...  10  Tubercular  glands  of  neck .  .  2 

Physical  defects 10  Epilepsy 2 

Bright's  disease 9  Diphtheria 1 

Sick,  no  definite  diagnosis .  .   9  Cirrhosis  of  liver 1 

Heart  trouble 7  Total , 85 

It  is  not  to  be  understood  that  Sears,  Roebuck  and  Company 
reject  every  applicant  found  to  be  physically  imperfect.  The 
policy  is  explained  by  Dr.  IMock  as  follows:  ''We  reject  only 
those  people  who  have  some  diseased  condition  which  might 
be  spread  to  the  other  employees  if  they  were  allowed  to  work 
among  them,  or  those  whose  diseased  condition  is  so  serious 
that  it  would  be  very  dangerous  to  themselves  if  they  were 
allowed  to  work.  Those  with  ailments  which  would  not  be 
detrimental  to  their  fellow  employees,  and  which  would  not  be 
made  worse  by  work  are  given  positions.  Suitable  work  is 
chosen  for  them  to  comply  with  their  physical  condition." 

The  manner  in  which  physical  examinations  serve  to  safe- 
guard the  health  of  undiseased  employees  may  be  illustrated 
by  the  experience  of  the  same  company  with  tuberculosis.  In 
1909,  with  one  doctor  employed,  800  examinations  were  made. 
No  tuberculosis  was  discovered  among  applicants  for  work, 

^  H.  E.  Mock,  An  Efficient  System  of  Medical  Examination  of  Em- 
ployees, Trans,  of  10th  Annual  Meeting  of  Nat'l  Asso.  for  the  Study  and 
Prevention  of  Tuberculosis,  N.  Y.,  1915. 


WELFARE  WORK  299 

for  applicants  were  not  examined.  Of  the  45  cases  which 
developed  that  year  in  the  force,  only  11  per  cent  were 
detected  in  first  year  employees.  In  1914,  with  six  doctors 
employed,  12,380  examinations  were  made  of  which  approxi- 
mately 5,600  were  of  apphcants  for  work.  In  this  year  40 
cases  of  tuberculosis  were  found  among  the  apphcants,  and 
115  cases  developed  among  a  very  greatly  mcreased  number 
of  employees.  Of  these  115  cases,  29.6  per  cent  were  detected 
in  those  who  had  worked  less  than  twelve  months;  an  accom- 
phshment  due  to  the  system  of  putting  apphcants  with  sus- 
picious findings  upon  a  ''watch  "  hst.  This  company  keeps  a 
constant  lookout  for  those  who  are  falling  below  par  physically, 
and  extends  aid  to  them  in  a  variety  of  ways. 

The  visiting  nurse.  —  The  emplo^mient  of  a  visiting  nurse 
is  the  recognition  of  two  facts:  first,  that  the  nurse,  previously 
considered  as  a  curative  agency  only,  is  being  used  as  an  edu- 
cational and  preventive  agency;  second,  that  the  efficiency  of 
an  employee  may  be  quite  as  much  reduced  by  wrong  condi- 
tions in  the  home  as  in  the  factory.  ''A  man  who  sits  up 
night  after  night  nursing  a  tuberculous  wife  or  helping  to  care 
for  children  with  croup  has  an  mcreased  disposition  to  error 
of  judgment;   he  is  not  a  safe  man  to  run  an  engine.''  ^ 

Hospital  facilities.2  —  In  the  dangerous  trades  a  necessary 
provision  is  a  suitable  place  for  givmg  care  to  those  who  are 

^  1  Dr.  C.  A.  Lauffer,   Standardized  First  Aid,  Second  Annual  Rep.  of 
Nat'l  Asso.  of  Corporation  Schools,  1914,  p.  621. 

2  Some  establishments  maintaining  emergency  rooms  or  shop  hospitals 
are  — 

American  Locomotive  Company,  Schenectady,  N.  Y.,  and  elsewhere. 

Brighton  Mills,  Passaic,  N.  J. 

Burroughs  Adding  Machine  Company,  Detroit,  Mich. 

Carnegie  Steel  Company,  Homestead,  Pa. 

Consohdated  Gas  Company  of  New  York,  New  York  City,  N.  Y. 

Curtis  Publishing  Company,  Philadelphia,  Pa. 

General  Electric  Company,  Schenectady,  N.  Y. 

National  Cash  Register  Company,  Dayton,  O. 


300     ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

injured.  The  minimum  accommodation  is  an  emergency  room 
for  immediate  recuperation,  equipped  with  facihties  for  extend- 
ing first  aid.  Estabhshments  of  size,  in  engineering  lines,  find 
it  necessary  to  enlarge  their  quarters  into  a  miniature  hospital; 
while  the  largest  employing  concerns  have  found  it  necessary 
to  equip  mstitutions  of  standard  size,  when  there  are  no  pubhc 
hospitals  in  the  localit}'. 

The  Colorado  Fuel  and  Iron  Company  operates  at  Pueblo, 
Colorado,  the  Minnequa  Hospital,  which  Doctor  Lorenz  of 
Vienna,  on  his  visit  to  this  country  in  October  1902,  pronounced 
the  finest  hospital  he  had  seen  in  America.  This  institution 
accommodates  216  patients.  The  original  cost  was  8350,000. 
IMan}^  additions  have  been  made  to  it.  It  is  located  in  thir- 
teen acres  of  landscaped  grounds.  This  company  maintains 
a  number  of  retaining  stations  at  various  points,  for  the  tem- 
porary care  of  patients  until  they  can  be  transferred  to  the 
hospital.  The  need  for  such  equipment  can  be  seen  from  the 
fact  that  for  the  five  years,  1910-1914  inclusive,  the  cases 
treated  annually  have  averaged  98,474. 

The  midday  meal.^  —  The  grow^th  of  cities  is  tending  con- 
stantly to  enlarge  the  area  from  which  the  individuals  of  an 

National  Cloak  and  Suit  Companj^,  Xew  York  City,  N.  Y. 

New  York  Edison  Company,  New  York  City,  X.  Y. 

Sears,  Roebuck  and  Company,  Chicago,  111. 

Travelers'  Insurance  Compan}',  Hartford,  Conn. 

Western  Electric  Company,  Chicago,  111. 

Westinghouse  Electric  and  ^lanufacturing  Companj',  E.  Pittsburg,  Pa. 

Yale  and  To^Tie  ^Manufacturing  Company,  Stamford,  Conn. 

1  Some  concerns  operating  a  lunch  room  for  workmen  or  working 
women  are  as  follows  — 

American  Locomotive  Company,  at  Schenectady,  X.  Y.,  Richmond, 
Va.,  and  Montreal,  Canada. 

Burroughs  Adding  Machine  Company,  Detroit,  Mich. 

Carnegie  Steel  Company,  Homestead,  Pa. 

Curtis  Pubhshing  Company,  Philadelphia,  Pa. 

Ferris  Brothers  Company,  Newark,  X.  J. 

H.  J.  Heinz  Company,  Pittsburg,  Pa. 


WELFARE  WORK  301 

establishment  are  recruited  and  so  to  lengthen  the  average 
distance  between  home  and  place  of  work.  When  a  large 
proportion  of  the  employees  of  a  plant  are  reduced  to  the  alter- 
native of  depending  upon  a  lunch  box,  or  a  nearby  restaurant, 
or  a  saloon,  or  of  taking  two  long  rapid  walks,  home  and  back, 
or  of  pajdng  out  two  street-car  fares,  the  juncture  is  created  for 
considering  the  operation  of  a  private  dining-room.  The 
midday  meal  is  the  critical  one  of  the  day,  from  the  point  of 
view  of  efficienc}^,  for  it  is  received  into  the  stomach  when  the 
body  is  in  a  state  of  partial  exhaustion,  and  is  promptly  fol- 
lowed by  mental  and  physical  exertion  which  draws  the  blood 
away  from  the  digestive  organs.  It  is  worth  while  for  an 
employer  to  see  that  this  meal  is  composed  of  digestible  and 
appetizing  food,  and  is  served  at  a  place  which  will  allow  as 
large  a  portion  of  the  noon  hour  to  be  spent  in  rest  and 
recreation  as  possible. 

The  price  problem  is  somewhat  difficult.  Food  should  not 
be  given  gratis;  but  the  prices  must  be  kept  close  to  cost. 
With  a  reasonable  number  of  patrons  it  is  not  hard  to  serve 
a  good  meal  for  15  cents.  While  office  employees  will  pay 
this  price,  the  patronage  of  the  operative  force,  which  is  the 

Larkin  Company,  Buffalo,  N.  Y. 

Ludlow  Manufacturing  Associates,  Ludlow,  Mass. 

National  Cash  Register  Co.,  Dayton,  O. 

National  Cloak  and  Suit  Co.,  New  York  City,  N.  Y. 

National  Harvester  Companj'^,  Chicago,  111.,  and  elsewhere. 

National  Lamp  Works,  in  eighteen  factories. 

New  York  Edison  Company,  New  York  City,  N.  Y. 

Packard  Motor  Car  Company,  Detroit,  Mich. 

Sherwin-Williams  Paint  Company,  Newark,  N.  J. 

The  Shredded  Wheat  Company,  Niagara  Falls,  N.  Y. 

L.  C.  Smith  and  Brother,  Syracuse,  N.  Y. 

Solvay  Process  Company,  Solvay,  N.  Y. 

Thomas  G.  Plant  Company,  Boston,  Mass. 

United  Shoe  Machinery  Company,  Beverly,  Mass. 

Western  Electric  Company,  Chicago,  111. 

Weston  Electrical  Instrument  Company,  Newark,  N.  J, 


302      ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

important  one  to  cater  to,  falls  off  rapidly  when  10  cents  is 
passed.  Those  who  Hve  at  home  feel  that  food  brought  in 
a  box  or  pail  costs  them  ver}^  little;  while  those  who  live  in 
boarding  houses  find  that  they  can  get  httle  or  no  reduction 
for  not  carrying  a  lunch.  That  an  appetizing  meal  can  be 
served  for  ten  cents  is  proved  from  the  experience  of  the 
Rufus  F.  Dawes  Hotel  of  Chicago.  This  institution  has  the 
following  bill  of  fare: 

j\Ieat  hash  and  beans 3  cents 

Coffee  with  milk  and  sugar 2 

Roll 1 

Macaroni  and  bread 3 

INIutton  stew  and  bread 3 

Soup  with  bread 2 

Doughnut 1 

Baked  beans  and  bread 3 

Pie,  all  varieties 3 

In  the  year  1914  the  hotel  served  59,219  meals  at  an  average 
price  of  SO. 06288,  and  an  average  cost  for  labor  and  materials 
of  $0.05976.  ]\Iaking  a  reasonable  allowance  for  depreciation 
of  equipment,  the  cost  per  meal  was  approximately  $.0655 1. 

The  best  pohcy  for  a  factory  restaurant  seems  to  be  to  price 
individual  dishes  separately;  to  estabhsh  the  custom  that 
employees  may  bring  their  lunch  boxes  into  the  room;  to 
speciahze  on  coffee  at  1  or  2  cents  per  cup,  and  soup  at  3  or  4 
cents  per  bowl,  as  a  supplement  to  the  soUd  food  of  the  lunch 
box;  and  to  make  arrangements  to  heat  or  refrigerate  gratis 
any  food  brought  to  the  plant  by  the  employees.  Where  a 
force  consists  chiefl}"  of  mechanics,  receiving  good  pay,  the 
price  difficulty  is  diminished. 

The  Continental  ]\Iotor  Company  of  Detroit,  with  2,500 
men,  serves  daily  as  many  as  their  restaurant  will  accommo- 
date. Of  the  patrons  about  800  take  the  entire  noon  meal, 
while  400  carry  their  own  lunch,  and  supplement  it  by  a  hot 


WELFARE  WORK  303 

beverage  and,  perhaps,  a  dish  or  two  chosen  from  the  bill  of 
fare.  The  company  furnishes  the  space,  gas,  heat,  and  light 
free,  allowing  a  caterer  a  small  profit,  and  fixing  the  prices 
charged.  The  prices  are  as  follows :  soup  5  cents,  meats  7  cents, 
vegetables  3  cents,  pastry  and  fruits  5  cents,  bread  and  rolls 
with  butter  3  cents,  tea,  coffee,  and  milk  3  cents.  The  aver- 
age order  costs  15  cents.  The  office  force  dines  a  half  hour 
earher  than  the  shop  force. 

The  Jeffrey  Manufacturing  Company  of  Columbus,  Ohio, 
has  had  success  with  a  wide  range  of  cooperatively  managed 
welfare  undertakings.  With  reference  to  the  restaurant,  and 
certain  other  enterprises  closely  connected  with  it,  Mr.  W.  A. 
Grieves,  Supervisor  of  Welfare  for  the  company,  says:  ''Many 
of  our  men,  about  five  years  ago,  believed  that  we  ought  to 
have  a  restaurant.  A  meeting  was  held  and  committees 
appointed.  The  result  was  a  small  inexpensive  lunch  counter 
in  one  of  our  shops.  It  was  well  patronized,  and  in  a  few  months 
was  moved  to  larger  quarters.  W^e  have  now  moved  three 
different  times  to  larger  quarters,  and  have  a  thoroughly 
equipped  restaurant,  where  we  serve  an  average  of  six  hun- 
dred daily,  and  we  are  planning  to  double  this  capacity  in  the 
very  near  future. 

''While  we  sell  everything  at  three  cents,  with  the  excep- 
tion of  meat,  which  is  four  cents,  we  have  been  able  to  save 
sufficient  to  pay  for  our  equipment,  valued  at  $8,000,  the  money 
for  which  was  advanced,  without  interest,  by  the  company. 
The  food  is  the  very  highest  in  quality  and  wholesomeness; 
and  for  fifteen  to  twenty  cents  a  splendid  lunch,  yes,  even  a 
good-sized  meal,  can  be  secured.  So  popular  has  this  res- 
taurant become,  we  could  have  tripled  the  number  of  employees 
using  it  if  they  could  be  accommodated. 

"BeUeving  there  were  possibiHties  in  cooperative  buying, 
we  started  to  sell  such  articles  as  sugar,  coffee,  flour,  tobacco, 
etc.,  in  a  small  way  in  our  restaurant.  This  was  about  three 
years  ago.     During  this  period  the  plan  has  grown  into  a  good- 


304      ADMIXISTRATIOX  OF  INDUSTRIAL  EXTERPRISES 

sized  cooperative  store,  in  which  we  are  doing  ten  to  twelve 
thousand  dollars  of  business  each  month.  We  handle  all 
kinds  of  gi'oceries,  meats,  boots,  shoes,  rough  clothing,  etc. 
We  have  handled  this  year,  through  the  store,  about  thirty- 
five  car  loads  of  coal,  twent}'  car  loads  of  potatoes,  and  five 
car  loads  of  apples,  all  at  a  large  saving  in  money  to  employees. 
We  have  our  own  coal  wagons,  auto  delivery  trucks,  and  wagons. 

''Two  years  ago  we  started  our  own  bakery  m  a  small  way, 
but  now  have  an  oven  capacity-  of  three  thousand  loaves  of 
bread  per  day,  with  a  thorough  pastry  and  bread  mixing  equip- 
ment. Ever^iihing  used  in  our  restaurant  is  baked  in  our 
bakers^  The  bread  is  sold  at  four  cents  for  a  loaf  two  omices 
larger  than  the  usual  size.  We  have  a  lard  rendering  plant  in 
wliich  we  make  all  our  own  lard.  This  is  sold  at  from  five  to 
six  cents  less  per  pound  than  it  can  be  secured  at  other  stores. 
We  have  established  our  own  dauy  farm,  from  which  we  have 
fresh  morning  milk  for  lunch  each  day.  We  have,  also,  our 
own  ice  cream  factory,  and  during  the  simuuer  months  sell  a 
large-sized  dish  of  ice  cream  —  made  of  cream  from  the  farm  — 
for  three  cents. 

"All  this  work  is  fostered  and  encouraged  by  the  companj^, 
but  the  management  and  organization  is  carried  on  entirely  by 
committees  of  shop  men.  The  company-  advanced  us  the 
money  to  get  started,  but  we  have  paid  ahiiost  all  of  it  back."  ^ 

The  prices  at  the  Jeffre}^  restaurant  are:  meats  4  cents, 
vegetables  3  cents,  bread  and  butter  2  cents,  desserts  3  cents, 
beverages  3  cents.  The  National  Biscuit  Compam^  sei-^^es  in 
its  New  York  plant  a  dinner  consisting  of  hot  meat,  potatoes, 
bread  and  butter  and  coffee  or  tea  for  eleven  cents. 

Housing.-  —  It  seems  to  many  persons  a  considerable  de- 
parture from  ordinary  business  enterprise  for  an  employer  to 

1  W.  A.  Grieves,  The  Handling  of  Men,  Detroit,  1915.  pp.  12-13. 

2  Some  of  the  companies  which  pro\^de  housing  accommodations  are  — 
American  Viscose  Company,  Marcus  Hook,  Pa. 

Bethlehem  Steel  Company,  Bethlehem,  Pa. 


WELFARE  WORK  305 

invest  money  in  housing  accommodations  for  his  employees. 
It  is  not  that  any  one  doubts  the  connection  between  the  mate- 
rial conditions  of  the  workman's  home  and  his  health,  thrift, 
and  morals;  but  that  industry  has  so  completely  withdrawn 
from  the  household  that  we  think  of  these  two  institutions 
as  completely  divorced  and  existing  at  opposite  ends  of  the 
economic  scale. 

The  advantages  of  operating  in  real  estate  on  a  large  scale 
are,  ability  to  plot  land  correctly,  the  saving  of  unearned 
increment  on  land,  control  of  nuisances,  the  providing  of 
correctly  designed  floor  plans  and  adequate  specifications,  a 
much  reduced  cost  of  building,  and  a  great  increase  in  the 
convenience,  beaut}^,  and  attractiveness  of  a  locality,  wdth 
little  or  no  increase  in  outlay.  Some  of  the  dangers  to  be 
avoided  are,  a  barracks-like  effect,  undue  intermeddling  with 
the  employees'  outside  life,  and  the  growth  of  an  attitude 
on  the  part  of  under-officers  that  what  is  done  for  the  em- 
ployee outside  may  offset  —  and  so  perpetuate — administrative 
deficiencies  inside. 

Cheney  Brothers,  South  Manchester,  Conn. 
Dwight  Manufacturing  Company,  Alabama  City,  Ala. 
H,  C.  Frick  Coke  and  Coal  Company,  at  manj^  points  in  southwestern 
Pennsylvania. 

John  A.  Roebling's  Sons  Company,  Roebling,  N.  J. 

Joseph  Bancroft  and  Sons  Company,  Wilmington,  Del. 

Ludlow  Manufacturing  Associates,  Ludlow,  Mass. 

Maryland  Steel  Company,  Sparrows  Point,  Md. 

Monaghan  Mills,  Greenville,  S.  C. 

Nelson  Valve  Company,  Wjmdmore,  Pa. 

Peacedale  ]\Ianufacturing  Company,  Peacedale,  R.  I. 

Pennsylvania  Raihoad  Company,  Enola,  Pa. 

Plymouth  Cordage  Company,  Plymouth,  Mass. 

S.  D.  Warren  and  Company  (Cumberland  Mills),  Westbrook,  Me. 

Wcstinghouse  Air  Brake  Company,  Wilmerding,  Pa. 

Whitin  ^Lachine  Works,  Whitinsville,  Mass. 

Willimantic  Linen  Companj%  Willimantic,  Conn. 

Wiscasset  Mill,  Albemarle,  Ga. 


306      ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

A  village  problem.  —  Housing  is  chiefly  a  village  enterprise. 
If  a  manufacturing  plant  is  built  in  the  open  country,  or  in  a 
small  village,  local  capital  and  enterprise  may  not  be  adequate, 
and  outside  capital  may  be  disincUned  to  invest  in  an  enter- 
prise depending  upon  a  single  corporation.  Again,  a  manu- 
facturer who  has  developed  an  industry  requiring  skilled  labor, 
in  a  viUage,  may  find  that  the  superior  wor"kmen  and  the  more 
ambitious  famihes  are  being  attracted  awa}'  by  the  lure  of  the 
large  city,  so  that  it  is  necessary  to  develop  a  counterbalancing 
attraction  in  the  village  hfe.  As  the  art  of  city  planning  de- 
velops, and  the  ''garden  citj^  "  movement  extends  itself,  it  is 
becoming  evident  that  the  village  can  successfully  develop  such 
attractions,  and  can  hold  people  of  good  taste  and  general 
intelligence. 

Houses  to  rent.  —  The  practice  of  renting  houses  may  be 
illustrated  by  the  Pelzer  ^lanufacturing  Company  of  Pelzer, 
S.  C,  which  owns  all  the  land  about  the  mills,  and  controls 
the  unmcorporated  town  of  Pelzer.  At  Ludlow,  Mass.,  the 
Ludlow  ^Manufacturing  Associates  have  built  most  of  the 
houses,  and  constructed  the  streets  and  schools  and  churches. 
The  Colorado  Fuel  and  L'on  Company,  at  many  of  its  camps 
found  only  adobe  huts  and  shacks  and  tents  used  as  dwellings. 
It  was  obhged  to  build  houses,  and  teach  the  foreign-born 
women  and  neglected  children  the  rudiments  of  the  domestic 
arts,  in  order  to  bring  hving  conditions  to  a  decent  standard. 
Its  rental  rate  is  82.00  per  room  per  month.  At  Hopedale, 
Mass.,  The  Draper  Company  employs  practically'  all  of  the 
working  population.  It  has  built  beautiful  houses  for  its 
employees,  and  transformed  the  setting  into  a  landscaped  park. 
After  the  tract  of  land  was  purchased,  the  company  had  it 
laid  out  by  a  landscape  architect.  ^Macadam  streets  were 
then  built,  and  all  improvements  put  in.  The  plans  for  the 
houses  were  secured  from  several  leading  architects,  to  obtain 
variety  of  style,  and  yet  allow  of  buildings  or  apartments  of 
approximately    equal    size.     The    houses    are    provided    with 


WELFARE  WORK  307 

hardwood  floors,  cement  cellars,  and  modern  plumbing.  The 
company  keeps  the  buildings  in  repair,  and  insists  upon  the 
tenants  keeping  the  grounds  in  presentable  condition.  The 
rents  are  from  S3. 00  to  $3.50  per  week.  As  the  cost  was  $2,250 
per  tenement,  and  much  more  than  this  for  the  recently  built 
houses,  there  is  Uttle  direct  profit  to  the  company,  after  water 
rates,  insurance,  repairs,  and  depreciation  are  covered.  There 
is,  however,  probably  no  other  bod}"  of  wage  earners  in  the 
United  States  who  hve  in  equally  beautiful  surroundings. 

The  rental  policy  appears  to  be  indicated  for  two  sharply 
contrasted  cases:  first,  where  accommodations  must  be  pro- 
vided for  a  shifting  force,  representing  the  wage-earning  ele- 
ment of  a  low-grade  population,  without  sufficient  thrift  or 
resource  to  aspire  to  heme  ownership;  second,  where  a  very 
high  grade  population  is  to  be  accommodated,  so  that  central 
management  of  real  estate  plotting  and  domestic  architecture 
is  resorted  to  as  a  means  of  obtaining  the  aesthetic  charms  of  a 
mis  in  urhe. 

Houses  to  sell.  —  The  building  of  houses  to  sell  fits  the 
intermediate  case.  It  has  the  advantage  of  stimulating  home 
ownership,  of  contributing  strongly  to  stability  of  force,  and  of 
providing  the  individual  family  wdth  a  better  planned  house 
and  better  structural  values  than  can  be  gotten  when  houses 
are  built  one  b}'  one,  through  contractors.  Emplo3"ees  are  also 
protected  from  loan  sharks,  bad-title  frauds,  and  the  high 
interest  rates  of  most  instalment  plans.  The  N.  0.  Nelson 
Manufacturing  Company  of  Leclaire,  111.,  builds  houses  on 
plans  agreed  upon  between  the  firm  and  the  employees.  It 
charges  for  them  the  cost  of  the  material  and  labor,  and  a 
percentage  of  profit  equal  to  the  average  earned  by  the  busi- 
ness as  a  whole.  Of  this  plan  the  United  States  Bureau  of 
Labor  says:  ''As  the  firm  has  its  own  planing  mill  and  wood- 
working force,  the  net  cost  of  a  house  to  the  purchaser  is  con- 
siderably less  than  if  bought  in  the  usual  way.  PajTnents  are 
made  monthly,  the  amounts  varying  froni  $12  to  $20,  accord- 


308      ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

iiig  to  the  price  of  the  house,  the  wages  of  the  buyer,  and  the 
size  of  his  family.  ...  In  the  event  the  purchaser  deshes  to 
remove  and  dispose  of  his  property,  the  company  volimtarily 
refimds  the  amoimt  paid  for  the  house,  after  deducting  there- 
from rent  for  the  tune  occupied."  ^ 

The  boarding  house  problem.  —  In  rare  mstances  employers 
have  attacked  the  problem  of  the  hving  coucUtions  of  single 
employees.  If  a  manufactiu'er  m  a  small  place  requu'es  more 
single  men  or  women  than  the  population  of  the  locahty  affords, 
and  if  the  wages  he  can  afford  to  offer  are  not  sufficient  to 
attract  yoimg  people  from  nearby  towns,  where  they  live  at 
home  cheaply  with  their  parents,  he  may  be  forced  to  take 
steps  to  improve  the  piu-chasing  power  of  his  wages,  by  reduc- 
ing the  local  price  of  board  and  rooms,  or  by  raising  the  stand- 
ards of  boardiug  house  comfort.  Unmarried  wage  earners 
away  from  home  must,  as  a  rule,  live  as  boarders  in  the  families 
of  the  less  thrifty  workmen,  occiip}-ing  unheated,  desolate 
httle  rooms,  and  l^emg  deprived  of  adequate  facihties  for  enter- 
tainiug  friends  or  enjoymg  home  recreations. 

The  Waltham  Watch  Company  of  Waltham.  Mas^..  operates 
a  large  girls*  club  or  rooming  and  boarding  house,  where  women 
employees  can  seciu'e  accoromodations  at  a  verA-  moderate 
price.  The  same  company  controls  a  men's  boarding  house 
with  shghtly  higher  rates.  Care  is  taken  to  avoid  gi^-ing  the 
impression  that  the  company  desires  its  employees  to  hve  lq 
these  houses.  The  accommodations  are  sufficient  for  a  part  of 
the  immarried  force  only.  What  has  been  done  ser\'es.  however, 
to  regulate  private  rates  and  to  elevate  standards  of  comfort. 

Education.  —  The  tj-pes  of  educational  work  which  employ- 
ers do  most  frequently  may  be  enimierated  as  follows:  (1)  ele- 
mentaiy  schoohng  for  adults  whose  education  has  been  enthely 
neglected,  (2)  continuation  of  schooling  for  youths  who  have 
dropped  out  of  the  pubhc  schools  at  an  early  age  to  contribute 

1  G.  W.  W.  Hanger.  Housing  of  the  Working  People  in  the  United 
States  by  Employers,  Bull,  of  Bureau  of  Labor,  Sept.  1904,  p.  1215. 


WELFARE  WORK  309 

to  the  family  earnings,  (3)  vocational  training  as  a  substitute 
or  supplement  for  apprenticeship  and,  (4)  the  provision  of 
miscellaneous  opportunities  to  improve  the  intellectual  activity 
of  the  force  as  a  whole. 

Elementary  schooling.  —  The  American  pubKc  school  sys- 
tem leaves  little  occasion  for  employers  to  participate  in  elemen- 
tary education,  except  in  the  South,  in  the  interest  of  mountain 
whites,  and  in  the  North,  for  the  communication  of  the  three 
R's  to  adult  immigrants.  The  Pelzer  Manufacturing  Com- 
pany of  Pelzer,  S.  C,  supports  a  large  elementary  school  of 
over  700  pupils,  which  runs  for  nine  months  in  the  year.  It 
also  supports  a  kindergarten  in  a  separate  building,  with  an 
enrolment  of  150  children.  Both  of  these  schools  are  free. 
As  a  condition  of  employment  with  the  Pelzer  Company  every 
parent  is  required  to  sign  a  statement  agreeing  to  send  all 
members  of  the  family  between  the  ages  of  5  and  12  to  school 
regularly,  health  permitting.  The  reason  for  this  is  that, 
until  1915,  there  was  no  compulsory  school  law  in  South  Caro- 
lina. The  practice  is  still  continued,  since  the  new  law  is 
ineffectual,  its  operation  being  left  to  the  vote  of  each  school 
district,  and  no  provision  being  made  for  a  truant  officer.  Every 
child  who  attends  the  company's  school  for  a  month  without 
absences  is  given  10  cents.  When  this  mill  town  was  opened, 
75  per  cent  of  the  adults  were  illiterates;  the  proportion  has 
now  been  reduced  to  between  15  and  20  per  cent. 

An  illustration  of  the  problem  of  educating  the  immigrant 
may  be  seen  in  the  Ford  Motor  Company's  plant  at  Detroit, 
where  many  elementary  classes  are  being  instructed  by  volun- 
teer and  unpaid  teachers  from  the  force.  Out  of  the  30,000 
emplo3^ees  of  the  home  plant,  about  80  per  cent  are  of  foreign 
birth.  The  leading  foreign  nationalities  are,  in  the  order 
named,  the  Polish,  Russian,  Austrian,  Itahan,  Hungarian, 
Roumanian,  German,  and  Jewish. 

Continuation  schools.  —  The  school  plan  operated  for  some 
years   by  the  N.  0.  Nelson  Company  of  Leclaire,  111.,  was 


310      ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

unique.  At  12  years  of  age  the  boys  in  the  neighborhood  were 
achuitted  to  the  school  and  shop.  They  were  obhged  to  devote 
one  horn-  per  day  to  work  in  the  company's  factor^-,  or  on  its 
farm.  For  this  work  they  were  paid.  The  remainder  of  the 
day  was  spent  in  school.  As  the  age  increased  the  amount  of 
work  required  increased  and  the  study  period  decreased  until, 
at  the  eighteenth  year^  the  boys  gi-aduated  from  school.  A 
special  class  was  pro\'ided  for  boys  16  years  of  age  or  older,  who 
were  admitted  from  outside  locahties.  Such  boys  could  get 
haK-day  schooling,  and  were  requii*ed  to  work  for  the  company 
the  other  half  day.  In  retiun  for  this  work  the  company  paid 
the  expenses  of  board,  lodging,  and  schooling.  The  plan  was 
abandoned  for  the  reason  thus  given  by  ^Ir.  Nelson:  ''My 
design  was  to  educate  yoimg  men,  in  the  shops  and  on  the  farm, 
to  make  a  h^dng  by  manual  labor,  and  at  the  same  time  give 
them  as  much  school  education  as  they  would  take.  We  found 
that  nearly  aU  who  came  to  the  school  did  so  with  a  view  to 
getting  a  Hterar\-  education,  for  the  purpose  of  getting  away 
from  manual  work." 

Apprenticeship  schools.-  —  With  the  decline  of  apprentice- 
ship, caused  by  the  subcU\'ision  of  the  trades  and  the  more 

*  Most  of  the  great  railways  have,  since  1905,  established  apprentice- 
ship schools  at  points  where  shops  are  located.  Among  manufacturing 
concerns  having  shop  schools  mention  may  be  made  of  — 

The  American  Locomotive  Company,  with  schools  at  7  points. 

Brown-Sharpe  Manufacturing  Company,  Pro\'idence,  R.  I. 

Cadillac  Motor  Car  Co.,  Detroit,  Mich. 

ConsoUdated  Gas  Company,  New  York  City,  X.  Y. 

Fore  River  Shipbuilding  Company,  Quincy,  Mass. 

General  Electric  Company,  at  West  Lj-nn,  Mass.,  and  at  Schenectady, 

N.  Y. 
R.  Hoe  and  Company,  New  York  City,  X.  Y.,  with  a  school  established 

in  1S72. 
International  Harvester  Company,  Chicago.  lU. 
Packard  Motor  Car  Company,  Detroit.  Mich. 
Solvay  Process  Company,  Solvay,  N.  Y. 
United  Shoe  Machinery  Company,  Beverly,  Mass. 


WELFARE  WORK  311 

exacting  schedules  of  power-driven  manufacturing,  some  of  the 
larger  employing  concerns  have  turned  to  school  methods  of 
instruction,  as  a  means  of  maintaining  standards  of  craftsman- 
ship. Shop  schools  are  conducted  at  the  plant,  usually  during 
business  hours,  the  time  spent  by  the  pupil  in  study  being 
paid  for  at  the  same  rate  as  other  working  hours.  Sessions 
occupy  on  the  average  3  or  4  hours  per  week;  the  courses 
extend  over  a  period  of  from  2  to  4  years.  The  instructor  is 
commonly  selected  from  the  force,  and  devotes  but  a  portion  of 
his  time  to  teaching.  The  studies,  which  generally  presuppose 
seventh  grade  attainments,  relate  closely  to  the  shop  craft  or 
office  work  toward  which  the  student  is  directing  himself.  The 
subjects  most  frequently  chosen  are  English,  mathematics, 
mechanical  drawing,  and  shop  processes.  Text  books  and  writ- 
ten examinations  are  not  unusual.  The  pupil  is  usually  bound 
by  an  agreement  or  indenture  with  reference  to  the  term  of 
emplojmient. 

Miscellaneous  intellectual  opportunities.  —  A  great  variety 
of  educational  or  inspirational  activities  may.  be  discovered 
by  reviewing  what  progressive  employers  are  doing.  While 
these  efforts  are  not  sufficiently  systematic  to  deserve  the  name 
of  schooUng,  they  yet  serve  to  awaken  and  intensify  the  mental 
activity  of  employees,  to  reveal  the  hidden  arts  or  points  of 
superior  technique  connected  with  the  day's  work,  or  to  reveal 
standards  which  will  elevate  the  general  manner  of  hving. 
Among  the  means  employed  may  be  mentioned,  noon  shop 

Western  Electric  Company,  Chicago,  111. 

Westinghouse  Electric  and  Manufactiu"ing  Company,  E.  Pittsburg,  Pa. 

Yale  and  Towne  Manufacturing  Company,  Stamford,  Conn. 

Office  schools  are  conducted  by  the  — 

Burroughs  Adding  Machine  Company,  Detroit,  Mich. 

Curtis  Publishing  Company,  Philadelphia,  Pa. 

Equitable  Life  Insurance  Company,  New  York  City,  N.  Y. 

National  City  Bank,  New  York  City,  N.  Y. 

National  Cloak  and  Suit  Company,  New  York  City,  N.  Y. 

National  Surety  Company,  New  York  City,  N.  Y. 


312     ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

talks,  educational  moving-picture  films,  circulating  and  refer- 
ence libraries,  study  clubs,  an  employees'  magazine,  and  educa- 
tional trips  to  other  establishments. 

Clubs. ^  —  Social  advantages  are  distributed  with  extreme 
unevenness  in  any  community.  A  few  persons  are  blessed, 
and  even  over-blessed,  while  the  majority  lead  hves  which  are 
starved  from  lack  of  variety  of  human  association.  The  size 
of  modern  communities  has  become  such  as  to  bring  about  a 
regional  separation  of  the  classes.  The  mobility  of  labor  is 
constant!}^  breaking  up  neighborhood  ties.  The  church  is 
no  longer,  as  once,  the  social  center  for  all  classes.  The  only 
point  at  which  the  gifted  and  non-gifted  are  brought  into  perma- 
nent contact  is  within  business  organizations.  Here  there  are 
those  with  leisure,  means,  friends,  and  administrative  ability 
who  are  qualified  for  social  leadersliip:  and  here  also  are  those 
who  lead  monotonous  and  lonesome  hves.  This  contact  creates 
an  opportunity  and  a  social  duty.     By  a  little  organization, 

^  Among  the  firms  which  have  built  club  houses  for  their  employees 
are  — 

The  Boston  Edison  Companj-. 

BrookljTi  Rapid  Transit  Company,  BrookljTi,  X.  Y. 

Commonweahh  Steel  Companj^,  St.  Louis,  Mo. 

Howland  Croft  Sons  and  Company,  Camden,  N.  J. 

Ilhnois  Steel  Compan}',  Joliet,  lU. 

International  Harvester  Company,  Chicago,  111. 

Maryland  Steel  Company,  Sparrows  Point,  IMd. 

National  Cash  Register  Company-,  Dajiion,  O. 

New  York  Edison  Company,  New  York,  N.Y. 

New  York  Telephone  Company,  New  York,  N.Y. 

Peacedale  Manufacturing  Company,  Peacedale,  R.  I. 

PljTnouth  Cordage  Compan3%  PljTnouth,  Mass. 

The  Pocasset  Worsted  Company,  Providence,  R.  I. 

Solvay  Process  Company,  Solvay,  N.  Y. 

United  Shoe  Machinery  Company,  Beverly,  Mass. 

Vermont  Marble  Company,  Proctor,  Vt. 

Weston  Electrical  Instrument  Company,  Newark,  N.  J. 

J.  H.  Williams  Company,  Brooklyn,  N.  Y. 

Witherbee  Sherman  Company,  Mineville,  N.  Y. 


WELFARE  WORK  313 

the  pleasures  of  human  companionship  may  be  made  a  trans- 
forming power  in  many  Hves. 

The  purpose  of  an  employees'  club  is  to  exploit  the  social 
resources  going  to  waste  in  an  industrial  group,  by  the  forma- 
tion of  recreation  groups,  such  as  vacation  clubs,  athletic  clubs, 
dancing  classes,  and  dinner  clubs;  by  the  formation  of  joint- 
consumption  groups  large  enough  to  purchase  entertainment 
on  a  reasonable  basis;  and  in  all  ways  which  will  enlarge  the 
variety  of  helpful  interchange  of  thought  and  impulse  between 
individuals. 

A  club,  by  the  formality  of  election  of  its  members,  creates 
an  atmosphere  of  selectness  and  solidarity  which  promotes 
acquaintance  and  mutual  confidence.  By  its  dues  it  banishes 
the  thought  of  patronage.  By  its  election  of  its  own  officers, 
and  its  self-government  under  a  constitution  and  by-laws,  it 
suggests  democracy,  responsibility,  and  independence  from  out- 
side dictation.  By  the  ease  with  which  a  variety  of  functions 
can  be  carried  on  through  various  committees,  it  is  fitted  to 
be  the  comprehensive  agency  which  binds  the  various  non- 
productive activities  of  an  establishment  into  an  organic  whole. 

The  chief  function  of  employers  in  connection  with  employees* 
clubs  is  to  provide  the  quarters.  An  unused  corner  of  a  shop 
may  be  fitted  up  as  a  game  room  and  place  for  committee 
meetings.  An  attic  floor,  or  a  portion  of  a  warehouse,  some- 
what remodelled,  may  be  used  at  noon  for  a  lunch  room,  and 
in  the  evening  be  converted  into  a  hall  for  lectures,  concerts, 
amateur  theatricals,  dances,  dinners,  and  social  gathering.  An 
independent  building  serves  to  give  an  organization  a  more 
tangible  and  distinctive  existence.  If  to  a  club  house  there  is 
attached  a  recreation  field,  those  who  prefer  indoor  amuse- 
ments can  count  on  the  cooperation  of  those  who  love  outdoor 
sports,  so  that  the  activities  of  the  society  need  not  go  into  a 
decline  during  the  summer  months. 

Difficulties.  —  The  Eagle  and  Phoenix  Club  of  Columbus, 
Georgia,   was  maintained  for  some  years  by  the  Eagle  and 


314     ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

Phoenix  textile  mills  of  that  city;  the  membership  being  con- 
fined to  employees.  The  club  occupied  a  house  provided  by 
the  mills.  Dues  were  15  cents  per  month.  The  money  so 
obtained  was  used  exclusively  for  entertainments.  These 
were  held  weekly  and  consisted  chiefly  of  dances  and  suppers 
to  which  the  women  relatives  of  the  members  were  in\'ited. 
There  was.  also,  a  lyceimi  coiu'se  of  lectm'es  in  the  winter,  to 
which  admission  was  by  ticket,  each  member  having  three 
tickets.  There  was  a  Hbrarv',  and  there  were  study  classes 
in  Enghsh.  mathematics,  and  elementary  branches.  ^lusic 
lessons  and  dancing  lessons  were  also  given.  A  g}-mnasiimi, 
with  free  baths,  was  in  charge  of  a  physical  dii-ector.  Any 
deficit  which  occiured  was  made  up  by  the  company.  The 
patronage  of  this  club  decKned  after  a  few  years,  until  the  pro- 
ject had  to  be  abandoned.  The  cause  of  failure,  as  given  by 
Mr.  J.  D.  [Nlassey,  Treasurer  of  the  company,  was  that  there 
did  not  at  the  time  exist  a  sufficiently  high  level  of  primarv' 
education  among  the  employees  to  enable  them  to  appreciate 
the  facilities  offered  them.  It  is  hoped  that  the  excellent  pubhc 
schools  of  Columbus  will,  in  a  few  years,  so  change  the  condi- 
tions that  a  club  enterprise  may  again  be  inaugurated. 

The  difficulty  of  making  even  an  elaborate  equipment  ensure 
success  may  be  illustrated  by  the  efforts  of  the  Celluloid  Com- 
pany of  Newark,  X.  J.,  on  behaK  of  the  Celluloid  Club.  In 
1889,  the  company  built  for  this  club  a  fine  three-stor}-  home, 
at  a  cost  of  -$40,000.  The  basement  of  the  building  contains  4 
slate  bowling  alleys,  a  pair  of  rifle  ranges,  a  game  room,  lockers, 
and  boiler  room.  On  the  first  floor  are  hall,  reception  room, 
bilhard  room,  cloak  and  bath  rooms,  lavatories,  business  office, 
cafe,  and  kitchen.  On  the  second  floor  are  the  reading  room 
and  hbrar\',  ladies'  reception  room,  and  card  room,  besides 
officers'  quarters  and  committee  rooms.  The  entii-e  third 
floor  is  taken  up  by  an  auditorium  ha^^ng  a  seating  capacity 
of  500  people,  and  equipped  with  stage  and  dressing  rooms. 
The  members  of  this  club  pay  no  dues  whatever,  the  com- 


WELFARE  WORK  315 

pany  furnishing  and  maintaining  the  building.  At  noon  the 
cafe  serves  a  luncheon  at  cost  to  members.  Once  a  month 
there  is  a  general  entertainment  or  dance.  A  variety  of  activ- 
ities is  promoted,  the  most  successful  of  which  are  a  savings 
and  loan  department,  and  an  insurance  department.  This 
club,  which  was  very  popular  in  its  earher  years,  has  been 
recently  somewhat  neglected  by  the  employees.  One  reason 
assigned  for  this  is  that  the  club  house  is  not  at  the  works, 
and  consequently  is  not  convenient  for  use  at  the  noon  recess. 
Another  reason  may  exist  in  the  general  conception  of  the 
institution,  which  is  that  of  a  business  man's  club. 

The  traditional  conception  of  a  club  based  on  the  habits  of 
the  ''club  man  "  is  a  delusion  and  a  snare  in  the  planning  of 
employees'  clubs.  By  following  it,  equipment  may  be  so 
elaborated  that  people  accustomed  to  simple  things  feel  un- 
at-home.  The  emphasis  which  this  ideal  places  upon  drinking 
and  lounging  does  not  accord  with  the  wage  earner's  philosophy 
of  hfe.  Finally,  a  man's  club  neglects  the  family,  the  leaven- 
ing of  which  with  a  new  life  is  the  chief  opportunity  of  an 
employees'  club. 

Acquaintance.  —  The  activities  of  a  club  reveal  men  and 
women  to  each  other  in  a  way  entirely  different  from  the 
routine  of  business.  By  bringing  out  something  besides  the 
work  side  of  character  they  provide  a  better  basis  for  coope- 
ration, even  in  business.  They  serve  to  bring  together  officers 
and  employees,  and  to  cut  across  department  hnes. 

Recreation.  —  The  recreation  most  appreciated  by  young 
women  is  dancing  for  indoors,  and  tennis  for  outdoors;  that 
most  in  favor  with  men  is  billiards  for  indoors,  and  baseball 
for  outdoors.  All  of  these  recreations  require  expense  and  so 
organization.  The  effectiveness  of  recreation  as  a  form  of 
recuperation  lies  in  its  power  to  divert  attention  to  fresh  muscu- 
lar and  nervous  centers,  and  to  suspend  the  motor  and  sensory 
activities  which  have  to  do  with  fatigued  muscles.  For  brain 
workers,  its  value  hes  in  its  power  to  excite  fresh  centres  in  the 


316      ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

brain,  and  so  wholly  divert  conscious  and  mental  acti\-ity,  and 
partially  divert  subconscious  acti\'ity,  from  fatigued  areas.  In 
this  scientific  age  we  are  suspicious  of  the  wholesomeness  of 
natural  impulses  unless  a  scientist  steps  from  his  laborator>- 
with  proof  of  utility.  Let  us,  therefore,  quote  a  prime  author- 
ity. "A  prolonged  flow  of  happy  feelings, "  says  Geo.  J.  Ro- 
manes, "does  more  to  brace  up  the  system  for  work  than  any 
other  influence  operating  for  a  similar  length  of  time."  As  Dr. 
Laulier  says.  "We  may  use  an  area  of  the  brain  smaller  than 
a  silver  1  l::.r  in  our  usual  vocations:  to  get  rested  we  need 
avocatic::-.  -  >  :•-  to  employ  a  larger  area  of  the  brain  cortex. 
We  overiicu:  l-lc  set  of  wii'es,  so  to  speak:  we  rest  up,  not  only 
by  allowing  those  wires  to  cool,  but  by  heating  another  set,  which 
more  completely  diverts  the  attention  from  the  coohng  set."  ^ 

The  warfare  with  drink  and  vice.  —  The  club,  beiag  a  chief 
means  by  which  recreation  can  be  secm-ed,  without  paternal- 
ism and  undue  mtermeddhng.  is  a  competitor  of  the  saloon  and 
pubhc  dance  hall.  The  wehare  department  of  the  Colorado 
Fuel  and  Iron  Company  has  had  to  deal  with  the  characteristic 
population  and  habits  of  mining  towns.  It  has  for  yeai-s  waged 
an  uni'elenting  warfare  against  the  saloon,  using  all  conceivable 
agencies,  such  as  soft-drink  clubs,  restricted  wet  clubs.  refoiTQ 
saloons,  and  regulated  saloons.  Its  nearest  approximation  to 
success  was,  perhaps,  with  the  Coalbasin  Club.  This  organ- 
ization was  well  housed  in  a  club  house,  provided  with  the  usual 
sanitary  and  amusement  featm'es.  It  sold  soft  drinks  at  low 
rates.  It  also  sold  hquors.  but  under  the  restrictions  that  they 
must  be  pure,  that  they  must  be  sold  at  a  good  profit,  that  the 
bar  must  not  be  located  in  or  close  to  the  lounging  room,  and 
that  the  club  rule  of  no  treating  must  be  strictly  enforced. 

Development  of  initiative.  —  A  club  offei-s  to  its  members  a 
chance  to  exercise  their  own  initiative;  hence  it  gives  the  ^-igor 
of  freedom  in  action,  and  the  pride  of  ownership  in  accom- 

^  Dr.  C.  A.  Lauffer,  Standardized  First  Aid.  Rep.  of  Second  Convention 

of  Xat'l  -\iso.  of  Corporation  Schools.  1914,  p.  620. 


WELFARE  WORK  317 

plishments.  After  an  extensive  experience  with  welfare  work, 
the  National  Cash  Register  Company  of  Dayton,  Ohio,  found 
it  advisable  to  abandon  most  forms  of  office-directed  enterprise, 
and  place  responsibihty  in  the  hands  of  two  clubs,  the  Men's 
Welfare  League,  and  the  Woman's  Century  Club.  When 
Senator  Proctor  of  Vermont  dedicated  a  $30,000  club  building 
to  the  men  of  the  Vermont  Marble  Company,  he  said,  ''Men 
prefer  to  care  for  themselves,  and  spend  their  own  money  —  the 
money  they  have  earned  —  in  their  own  way.  Give  them  a 
good  chance  to  do  this  wisely  and  properly  for  their  own  moral, 
intellectual,  social,  and  physical  welfare,  and  this  is  the  great- 
est help  the  employer  can  render  them." 

Beauty  in  the  industrial  environment. ^  —  Art  has  often 
been  looked  upon  as  something  expensive,  appropriate  to  adorn 
a  wealthy  man's  home.    It  has  been  treated  as  an  esoteric  mys- 

1  Among  the  many  manufacturing  concerns  which  are  eminent  for  the 
beauty  of  their  structures  are  — 

The  American  Colortype  Company,  Newark,  N,  J. 

American  Electric  Heater  Company,  Detroit,  IMich. 

H.  Black  and  Company,  Cleveland,  O. 

Brewster  and  Company,  New  York  City,  N.  Y. 

R.  Donnelly  and  Sons  Company,  New  York  City,  N.  Y. 

Ford  ]\'lotor  Company,  Detroit,  Mich. 

Ginn  PubUshing  Company,  Cambridge,  Mass. 

Hersey  Manufacturing  Company,  Boston,  Mass. 

W.  IM.  Hoyt  and  Company,  Chicago,  111. 

Hudson  Motor  Company,  Detroit,  Mich. 

Lever  Brothers,  Cambridge,  Mass. 

National  Biscuit  Company,  in  several  cities. 

Some  of  the  firms  which  have  attained  beauty  of  grounds  are 

The  Dennison  Manufacturing  Company,  S.  Framingham,  INIass; 
Gorham  Manufactm'ing  Company,  Providence,  R.  I. 
National  Cash  Register  Company,  Dayton,  O. 
Pl}Tnouth  Cordage  Company,  Plymouth,  Mass. 
Sears,  Roebuck  and  Company,  Chicago,  111. 
Walker  Pratt  Company,  E.  Watertown,  Mass. 
Walter  Baker  Company,  Milton  Lower  Mills,  Mass. 
Doubleday,  Bage  and  Company,  Garden  City,  L.  I.,  N.  Y. 


318     ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

terj^  or  secret  doctrine  to  be  concealed  in  libraries  and  galleries, 
and  revealed  only  to  those  with  long  hair  and  strange  manners. 
But  we  are  slowly  beginning  to  learn  by  experience  what  we 
might  have  learned  quickly  had  we  read  how  people  treated  it  in 
Athens,  Florence,  and  Antwerp,  namely,  that  art  is  to  embel- 
lish the  environment  of  daily  hfe,  and  give  worthy^  expression 
to  the  things  we  held  most  dear.  It  is  something  to  surround 
ourselves  with  for  the  pure  enjoyment  of  it,  and  to  use  for  the 
utility's  sake.  Psj^chology  is  teaching  us  that  artistic  things 
are  restful,  working  a  magic  of  nervous  economj'-  tlirough  the 
sense  of  fitness  they  produce. 

Surely  that  is  utihtarian  which  produces  much  pleasure  at 
little  cost.  A  beautiful  building  may  give  a  minute's  pleasure 
each  day  to  50,000  passers  in  the  street,  and  so  produce  from 
800  to  1,000  solid  hours  of  human  happiness  for  every  24  hours 
it  stands.  An  outfit  of  window  boxes,  gay  with  flowers  through- 
out a  summer,  may  transform  a  gray,  gaunt  factory  into  a  place 
that  seems  like  home  for  a  couple  of  hundred  women  employees, 
and  do  this  for  an  outlay  of  a  few  dollars.  If  this  cheap  util- 
ity, and  this  tonic  of  pleasure  is  to  be  enjoyed  by  the  majority 
of  persons,  it  must  come  to  them  by  snatches  in  the  hours 
of  work.  If  art  is  to  be  made  democratic  in  a  country  where 
industry  prevails,  it  must  transform  the  industrial  environ- 
ment. The  place  for  beautiful  things  is  where  they  will  be 
seen.  A  rich  stained  glass  window  glowing  in  the  afternoon 
sun  in  the  end  of  some  great  erecting  shop  is  a  hundred-fold 
more  useful  than  locked  away  in  the  nave  of  a  silent  church. 
And  more  appropriate,  for  it  can  only  ''glorify  God  "  by  re- 
freshing the  human  spirit.  ''As  we  journey  through  life,  let 
us  live  by  the  way." 

Responding  to  such  thoughts  as  these,  we  find  American 
employers,  hke  the  Kodak  Companj^,  planting  vines  to  cover 
the  brick  walls  of  their  buildings,  the  National  Cash  Register 
Company  employing  an  expert  to  landscape  their  grounds,  the 
H.  J.  Heinze  and  Company  putting  beautiful  windows  on  their 


WELFARE  WORK  319 

stairways  and  hanging  paintings  on  their  walls,  and  the  Inter- 
national Harvester  Company  providing  band  concerts  at  noon 
for  their  employees.  When  it  is  observed  that,  in  our  great 
cities,  the  banks  and  office  buildings  are  borrowing  from  the 
classical  temples,  and  that  the  larger  stores  are  ornamenting 
their  departments  hke  galleries  of  art,  it  seems  not  impossible 
that  a  renaissance  of  art  may  develop  under  the  patronage  of 
industry  in  this  '4and  of  boundless  possibilities." 

Landscape  gardening.  —  A  great  impulse  toward  the  intro- 
duction of  art  into  daily  life  has  come  through  the  arrival  of  the 
most  inexpensive  and  democratic  of  all  arts,  namely,  landscape 
gardening.  This  art  escaped  some  years  ago  from  our  ceme- 
teries into  our  public  parks,  converting  them  from  bare  mead- 
ows and  raw  woodlands  into  gardens  beautiful  with  flowers 
and  fountains  and  bathing  pools  and  boating  lagoons  and 
play  grounds.  It  is  now  being  taken  to  the  homes  of  the  people, 
and  there  simphfied  to  frame  in  the  lawns  with  shrubbery 
borders  and  hide  unsightly  objects.  As  the  home  grounds  take 
on  a  more  attractive  appearance,  people  are  being  coaxed 
out  of  their  houses  into  sun  parlors  and  hving  porches  and 
pergolas,  and  are  learning  to  unite  the  indoor  and  outdoor 
divisions  of  the  home  life  into  a  new  unity,  through  a  recrea- 
tion which  combines  art  with  nature,  and  aims  to  paint  land- 
scapes in  real  materials. 

Is  there  any  reason  why  the  streets  and  homes  and  parks  of 
the  American  city  should  be  made  beautiful,  but  the  buildings 
and  grounds  where  the  workers  of  the  community  spend  their 
days  should  remain  ugly?  ''Life  without  industry,"  said 
Ruskin,  '*is  guilt;  industry  without  art  is  brutaUty."  As  a 
result  of  the  competition  of  American  cities  for  population  and 
new  industries,  it  has  at  last  been  noticed  that  the  railway  hues, 
from  which  the  travelhng  pubhc  views  a  city,  are  usually  bor- 
ered  with  industrial  estabUshments  so  that,  if  these  buildings  are 
ugly,  and  their  grounds  neglected,  the  impression  goes  out  that 
the  community  is  poor  and  its  people  lacking  in  education. 


320      ADMINISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

Art  and  expense.  —  The  beaiitification  movement  is  not  one 
wliich  calls  for  great  expenditm'e.  The  prerequisites  of  beauty 
are  cleanness  and  appropriateness.  Factory  rooms  may  be 
made  attractive  by  painting  the  walls  and  ceilings  with  cheer- 
ful tints,  and  by  decorating  with  simple  stencil  patterns  or 
with  large  Hthograpliic,  or  even  poster,  reproductions  of  works 
of  art  in  colors.  The  beaut}^  of  a  building  consists  rather  m 
the  proportions  of  the  larger  masses,  and  the  rh3^thm  and  bal- 
ance of  the  indi\idual  parts,  and  in  the  color  harmony  of  the 
materials  used,  than  in  anj-  specific  ornamentation.  For 
ornamentation,  indeed,  nothing  excels  vine-covered  walls  and 
window  boxes. 

The  grounds  about  factory-  buildings  and  the  fences  enclosing 
them  exercise  an  important  determinmg  influence  upon  general 
appearance.  If  the  inside  walks  and  drives  are  skilfully  laid 
out,  and  yard  storage  is  made  compact  and  sj^stematic,  it  will  be 
possible  to  put  considerable  areas  into  lawn,  redeeming  them 
from  dust  and  the  heat  and  glare  of  sunshine  reflected  from  bare 
earth.  It  is  the  function  of  shrubbery  to  emphasize  unity  and 
privacy  b}^  raising  a  wall  of  green  at  the  property  boundaries, 
and  by  softening  the  harsh  angle  made  where  building  walls 
sprmg  from  the  earth.  Tree  planting  will  serve  to  screen  dis- 
agreeable objects,  and  give  the  effect  of  varied  topograph3\ 
Flowers,  if  used  with  the  greatest  economy,  will  be  massed  at 
gateways  and  doorways,  where  the  beauty  of  individual  plants 
maj"  be  appreciated,  or  will  be  distributed  here  and  there  as 
narrow  bands  in  front  of  shrubbery  borders,  to  form  a  ribbon 
of  contrastmg  color  across  the  landscape  pictm'e. 

Policies.  —  The  following  propositions  with  reference  to 
wehare  work  appear  to  be  warranted  bj^  experience: 

1.  Wages  must  be  equal  to  those  paid  elsewhere  for  equal 
service.  It  is  unwise  to  make  such  a  lavish  expenditure  as 
to  generate  the  thought  that,  if  the  emploj^er  can  afford  to  do 
so  much,  he  might  raise  wages. 

2.  One  tiling  should  be  undertaken  at  a  time,  and  that  the 


WELFARE  WORK  321 

most  essential  thing.  The  way  for  each  move  should  be  care- 
fully paved,  so  that  the  intent  of  the  management  will  be 
understood.  The  development  of  enterprises  should  not  be 
allowed  to  outrun  the  power  of  readjustment  and  response 
of  the  employees,  upon  which  depends  the  utilization  of  the 
opportunities  provided. 

3.  As  rapidly  as  possible,  managerial  responsibility  should 
be  transferred  to  the  employees.  We  never  prize  what  others 
do  for  us  as  we  prize  what  we  have  achieved  for  ourselves.  The 
diplomatic  role  of  the  employer  is  to  be  the  power  behind  the 
throne. 

4.  Physical  conditions  will  demand  attention  before  school- 
ing or  art.  Tired,  dirty,  and  unperfectly  nourished  bodies  do 
not  respond  well  to  books  and  lectures  and  the  play  instinct. 

5.  Home  conditions  and  the  outside  Ufe  must  finally  be 
brought  into  harmony  with  the  life  it  is  hoped  to  create  at  the 
works,  otherwise  the  one  will  continually  undo  the  achieve- 
ments of  the  other. 

6.  No  conditions  should  be  allowed  to  develop,  under  the 
guise  of  welfare  work,  which  will  destroy  the  discipline  and 
efficiency  essential  to  provide  the  financial  wherewithal. 

Difficulties.  —  It  is  not  easy  to  make  a  success  of  welfare 
work.  There  are  many  projects  to  choose  from,  and  innumer- 
able ways  of  proceeding.  There  are  many  kinds  of  people 
and  there  is  an  infinite  variety  of  local  condition.  There  will 
inevitabl}^  be  some  embarrassment  for  employer  and  employed 
in  finding  a  footing  in  matters  where  orders  are  out  of  the 
question.  Workmen  have  well  defined  opinions  about  the 
conduct  of  their  lives;  and  into  contact  with  these  opinions 
any  plans  which  go  bej^ond  customary  industrial  practices  are 
bound  to  come.  It  is  natural  that  there  should  be  a  heritage 
of  suspicion  descended  from  the  time  when  emploj^ers  planned 
entirely  for  their  own  profit.  It  is  natural,  also,  that  trades 
unions  should  be  cold  toward  benefits  which  the  employer 
has  the  power  to  withdraw  at  a  moment's  notice. 


322      ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

Conclusion.  —  It  is  the  normal  method  of  progress  that  the 
refinements  of  life  shotild  first  be  enjoyed  by  the  few,  then 
extended  to  many  as  a  favor,  and  at  length  demanded  by  all  as 
a  right.  WeKare  work  is  the  beginning  of  a  new  form  of 
competition  between  employers,  which  is  addressed  to  their 
employees,,  and  is  concerned  not  so  much  ^-ith  direct  wages 
as  with  the  indirect  wages  of  the  character  of  the  en\"ironment 
which  makes  the  life  at  work  attractive  or  the  reverse.  This 
competition  is  now  sufficiently  developed  so  that  the  standard 
forms  of  wehare  work  exert  an  influence  in  attracting  superior 
employees,  assuring  greater  permanence  of  force,  and  creating 
a  spirit  which  brings  better  sendee. 

Beyond  the  limits  of  competitive  calculation  welfare  work 
pays,  for  the  simple  reason  that  it  is  agreeable  to  be  smTOunded 
by  fit  and  beautiful  things,  and  to  spend  the  working  hours  of 
Ufe  among  friends.  The  field  of  welfare  work  presents  an 
opportunity  of  leadership  for  a  man  of  culture  or  of  imusual 
dynamic  power,  in  matters  which  he  beyond  the  minunimi  of 
decency  wliich  competition  forces  out  of  the  ruck  of  capitahsts. 

It  is  an  eft'ort  to  bring  production  and  consmnption  into  more 
intimate  contact;  an  effort  which  is  justified  by  the  obser^-a- 
tion  made  by  aU  men  of  penetration,  namely,  that  a  large 
part  of  the  reaUy  fine  opportimities  for  spending  grow  out  of  the 
association  of  men  together  in  producing.  In  the  past  many 
men  have  taken  wealth  out  of  industry-,  leaving  beliind  ugly 
factories  and  miserable  workers,  and  have  spent  their  means  in 
fields  where  they  were  amateurs,  doing  many  fine  things  and 
many  foohsh  things  in  art  and  charity  and  education.  There 
are  now  men  who  are  determined  to  see  what  can  be  done  in 
perfecting  and  beautif\TQg  the  life  in  industry  itself. 


WELFARE  WORK  323 

BIBLIOGRAPHY 

Tolman,  W.  H.,  and  Kendall,  L.  B.:  Safety,  N.  Y.,  1913. 

Price,  Geo.  M.:    The  Modern  Factory:    Safety,  Sanitation,  and  Welfare, 

N.  Y.,  1914.    Ch.  IV,  Factory  Accidents  and  Safety;  Ch.  VII,  Employ- 
ers' Welfare  Work. 
The  United   States   Commissioner  of  Labor:  Workmen's  Insurance  and 

Benefit  Funds  in  the  United  States,  Washington  D.  C.,  1909. 
Tolman,  Wm.  H.:  Social  Engineering,  N.  Y.,  1909. 
Henderson,  C.  R.:   Citizens  in  Industry,  N,  Y.,  1915. 
Shuey,  Edw.  L.:  Factory  People  and  Their  Employers,  N.  Y.,  1900. 
Hanger,  G.  W.  W.:   Housing  of  the  Working  People  in  the  United  States 

by  Employers,  Bulletin  of  U.  S.  Bureau  of  Labor,  Sept.  1901,  No. 

54,  pp.  1191-1243. 
Stevens,  Geo.  A.,  and  Hatch,  L.  W.:    Employers'  Welfare  Institutions, 

Part  IV  of  Report  of  N.  Y.  Comr.  of  Labor,  Albany,  N.  Y.,  1903, 

pp.  225-329. 
Jones,  Lloyd:  The  Life,  Times,  and  Labours  of  Robert  Owen,  N.  Y.,  1892. 
Otey,   Elizabeth    L.:    Employers'   Welfare  Work,    Bulletin  No.   123    of 

U.  S.  Bureau  of  Labor,  Washington,  D.  C,  1913. 
Jacobs,  H.  W.:    Betterment    Briefs,  N.  Y.,   1909.     Ch.  on  The  Square 

Deal  to  the  Railway  Employee,  pp.  233-262,  originally  published  in 

The  Engineering  Magazine,  June  1907. 
Cabot,  Dr.  Rich.  C:   What  Men  Live  By,  Boston,  1914.     Part  II,  Play, 

including  Chs.  X  to  XIX. 
United  States  Commissioner  of  Labor:  Report  on  Industrial  Education, 

Washington,  D.  C,  1911. 
Ford,  Henry:   The  Henry  Ford  Book:  Help  the  Other  Fellow,  Boston, 

1915. 


CHAPTER  XVI 
OFFICE  DEPARTMENTS 

The  nerve  centre.  —  It  is  necessary  to  form  a  corps  of  per- 
sonal assistants  about  the  chief  administrators,  and  to  provide 
equipment  of  a  special  character,  so  that  the  nervous  energy 
of  the  leaders  —  the  most  precious  thing  in  an  organization 
—  may  be  conserved  and  utilized  in  an  efficient  manner. 
The  office  corps  has  laid  upon  it  the  duty  of  anticipating  the 
needs  of  the  executives  for  detailed  information,  and  of  appl}^- 
ing  to  minor  and  routine  matters  the  principles  which  have 
been  estabhshed  by  general  orders  or  confirmed  by  the  force 
of  custom.  It  is  the  chief  function  of  the  office  staff  to  deal 
with  records;  producing  and  reproducing  them,  sending  and 
receiving  them,  and  inspecting  and  filing  them.  Some  of  these 
records  will  have  for  their  purpose  to  give  direction  to  shop 
and  field  activities,  others  will  form  a  part  of  the  system  of 
accounts  used  for  compiling  an  exact  record  of  values,  and  still 
others  v/iU  chronicle  the  relations  of  the  organization  with  the 
outside  world,  as  established  b}^  contracts,  correspondence, 
and  interviews.  In  handling  these  records,  the  office  acts 
the  part  of  a  nervous  system  of  an  organism.  Its  labors  are 
not  "unproductive"  any  more  than  the  work  of  the  spinal 
cord  and  the  motor  and  sensory  nervous  system,  which  connect 
the  brain  and  the  muscular  fibres  of  the  bod}^,  is  unproductive. 

Personnel.  —  In  ordinary  practice  the  number  of  persons  in 
the  office  force  will  average  about  one  to  twentj^  of  the  shop  or 
field  force.  The  pajToU  will  be  in  the  neighborhood  of  $1.00 
to  $10.00  of  the  other  departments.    The  clerical  force  may  be 

324 


OFFICE  DEPARTMENTS  325 

said  to  sun'ound  the  leading  executives  like  a  cloud.  If  it  is 
not  composed  of  well  chosen  persons,  it  may  form  a  screen, 
hiding  the  leader  from  his  operatives,  and  misinterpreting  him 
to  them  by  irritating  acts  of  arbitrariness  and  red  tape  per- 
formed in  his  name. 

Not  every  one  who  makes  an  exceptionally  good  record  in 
shop  or  field  work  can  succeed  in  the  atmosphere  of  an  office, 
and  so  pass  successfully  by  way  of  bureau  work  to  the  higher 
executive  positions.  Nor  is  the  born  leader,  who  lives  in  a 
world  of  large  ideas,  and  who  succeeds  chiefly  by  communi- 
cating his  enthusiasm  to  others,  a  person  necessarily  fitted  to 
organize  the  details  of  an  office.  There  is  a  special  technique 
in  office  work;  and  there  are  certain  temperaments  which  best 
adjust  themselves  to  it.  For  the  ideal  chief  clerk  there  is  re- 
quired tact  without  servility,  patience  and  accuracy  in  matters 
of  routine  without  lack  of  general  comprehension,  and  the 
power  of  organizing  details  into  a  sj^stem,  without  that  fanati- 
cal insistence  upon  form  which  often  accompanies  system  and 
which  leads  to  red  tape. 

Misuse  of  the  clerical  staff.  —  Those  who  stand  near  to 
overloaded  executives  are  very  apt  to  fall  heir  to  neglected 
duties.  A  careless  administrator  may  easily  fall  into  the  habit 
of  allowing  a  clerk  to  sign  his  name  to  letters  he  has  not  passed 
upon,  thus  in  effect  creating  an  understudy  without  sufficiently 
considering  the  step.  Such  a  practice  is  likely  to  lead  eventu- 
ally, at  some  time  when  the  officer  is  absent  from  his  post, 
to  the  ridiculous  situation  of  high-grade  field  officers  or  de- 
partment heads  taldng  their  orders  from  a  clerk  or  private 
stenographer.  In  this  way  the  slovenly  habit  of  delegating  au- 
thority on  the  basis  of  mere  proximity  ma}'  encroach  upon  the 
principle  of  delegating  it  on  the  basis  of  competence.  One 
of  the  problems  of  office  administration,  therefore,  is  to  pre- 
vent the  wedging  in  between  high  executives  of  some  person 
of  mere  clerical  rank,  whose  proper  function  is  not  adminis- 
tration but  record  keeping. 


326      ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

Office  versus  field.  —  An  office  is  engaged  in  handling  ideas. 
It  deals  with  representations  of  things  rather  than  with  the 
things  themselves  —  '^'ith  ideas  stripped  of  their  proper  sense- 
impressing  embodiments,  and  only  very  faintly  materiahzed 
by  their  written  records.  A  problem  of  office  work  is,  therefore, 
to  render  \'i-\-id  to  the  bm^eaiicratic  mind  the  real  consequences 
of  office  shortcomings,  as  those  conseciiiences  develop  at  a  dis- 
tance and  a  later  time,  in  the  shops,  or  the  sales  agencies,  or 
elsewhere  in  the  field  work.  There  are  needed  means  of  impres- 
sing the  clerical  mind  with  the  tecUousness  to  outdoor  men  of 
filling  out  elaborate  reports,  or  with  the  exasperation  of  tech- 
nical experts  at  orders  which  are  out  of  touch  with  the  situation. 
A  clerk  may  make  a  careless  omission  from  an  order,  and  the 
error  will  seem  a  small  thing  on  paper,  imless  he  is  able  to  real- 
ize that  it  may  translate  itself  into  tons  of  materials  shipped 
to  the  wrong  station,  or  a  gang  of  men  idle  for  lack  of  some  es- 
sential piece  of  apparatus,  or  long  hues  of  teams  waiting  while 
foremen  cUspute  as  to  the  meaniag  of  ambiguous  terms.  Unless 
the  work  of  the  office  and  the  field  can  be  kept  in  sensitive 
adjustment,  the  law  of  the  primary"  productive  process  may  be 
made  to  give  way  to  some  petty  rule  —  or  error  —  of  record 
making,  and  thus  the  tail  be  allowed  to  wag  the  dog.  If  a 
preliminary  field  trauiing  can  be  provided  for  office  can- 
chdates,  or  a  torn*  of  duty  can  be  arranged  to  make  field  and 
office  work  alternate  seasonably,  or  if  a  s^'stem  of  conferences 
can  be  arranged  to  bring  office  men  and  shop  men  into  inti- 
mate association,  records  can  be  given  a  vivid  and  pungent 
significance  for  the  office  force. 

The  problem  of  attention.  —  In  the  shops  and  in  field  work, 
where  productive  processes  of  a  physical  natm'e  are  going  on, 
the  progress  of  work  is  accompanied  by  the  movement  of  cer- 
tain objects,  and  by  a  characteristic  succession  of  sounds.  In 
the  successive  stages  of  a  task  the  workman's  body  assiunes 
difierent  postures  and  his  hands  come  in  contact  with  different 
objects.     A    varied    stream    of    sense    impressions,    therefore, 


OFFICE  DEPARTMENTS  327 

pours  in  upon  the  workman's  brain,  and  assists  him  to  keep 
his  mind  fixed  upon  his  task.  And  if  his  attention  wanders, 
a  change  in  some  one  of  the  physical  conditions  presently 
recalls  it,  and  gives  to  the  returning  thought  a  prompt  grasp 
of  the  state  of  affairs. 

The  labor  of  office  work,  on  the  other  hand,  must  be  carried 
on  without  these  powerful  aids  to  attention.  It  deals  with  a 
flow  of  ideas  more  or  less  completely  embalmed  in  a  monoto- 
nous collection  of  written  or  printed  papers.  The  accompany- 
ing physical  process  is  an  exceedingly  subordinate  matter:  it 
is  uniform  and  deadening,  and  lacks  that  dramatic  and  atten- 
tion-arresting character  which  physical  labor  possesses.  Most 
of  the  sense  stimuli  received  by  office  workers  from  sounds 
and  moving  objects  tend  rather  to  draw  the  attention  away 
from  the  task,  than  concentrate  upon  it.  To  hold  the  atten- 
tion against  the  pull  of  interest  requires  an  effort  of  will.  Such 
an  act  of  attending  is  not  involuntary  but  voluntary;  it  is 
highly  exhaustive  of  nervous  energy.  Under  ordinary  con- 
ditions the  office  man  is  quite  as  much  exhausted  by  what  he 
restrains  himseff  from  doing,  as  by  the  useful  labor  he 
accomplishes. 

Special  effort  should  be  made  to  defend  office  workers  against 
distractions.  This  may  be  done  by  suppressing  useless  noises, 
by  shutting  out  the  sight  of  moving  objects,  by  ehminating 
glare,  and  by  making  constrained  positions  of  the  body  unneces- 
sary. The  various  by-paths  down  which  attention  might  wander 
as  a  truant  must  be  closed.  Much  also  can  be  done,  in  a 
positive  way,  to  make  concentration  easy  bj^  giving  instruction 
in  the  psychology  of  attention,  by  increasing  the  significance  of 
work,  and  by  giving  appropriate  physical  expression  to  tasks. 

Noise.  —  The  problem  of  noise  is  growing  in  importance. 
The  increase  of  city  congestion,  the  greater  number  and  speed 
of  vehicles,  the  paving  of  roadways  with  hard  resounding  sub- 
stances, and  the  walling-in  of  the  streets  with  lofty  buildings 
whose  fronts  reflect  sound  as  do  the  sides  of  a  canon,  have  con- 


328     ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

spired  in  recent  years  to  make  conditions  in  office  sections  dis- 
tinctly less  favorable  to  mental  concentration.  The  inside 
conditions  have  also  grown  worse.  As  Dean  W.  C.  Sabin  of 
Harvard  University,  the  leading  American  expert  on  acoustics, 
has  said,  ''The  whole  development  of  building  construction  and 
building  materials,  during  the  past  twenty-five  years,  has  been 
in  the  direction  of  poor  acoustics  and  more  and  more  noisy 
offices.  Recent  efforts  at  fire-proof  construction  have  resulted 
in  the  use  of  harder  and  harder  wall  surfaces,  v/ith  consequent 
increase  in  reverberation.  The  plaster,  too,  is  usually  applied 
directly  to  the  tile  or  brick  walls,  and  is  much  heavier  and 
denser  than  the  old  hair-lime-mortar  plaster.  As  a  result  we 
have  exceedingly  noisy  rooms." 

Among  the  remedies  for  noise  are,  heavy  building  con- 
struction, tight  windows  (forced  ventilation  being  used),  floor 
coverings  of  rubber  or  cork  or  carpet,  and  sound-absorbing 
coverings  for  walls  and  ceiling.  Dean  Sabin  has  shown  that  a 
layer  of  hair  felt  IJ  inches  thick,  placed  on  walls  and  ceil- 
ing, will  absorb  about  J  of  the  sound  of  lower  C  reflected 
against  it,  about  yV  of  the  sound  of  middle  C,  and  over  f  of 
higher  C. 

The  nature  of  attention.  —  Every  mental  worker  should  be 
instructed  in  the  nature  of  attention,  so  that  he  can  analyze 
himself,  and  can  learn  to  take  the  necessary  precautions  to 
protect  himself  against  his  own  weaknesses.  He  should  be 
trained  to  the  habit  of  closely  pursuing  the  heart  of  a  matter, 
by  asking  himself  repeatedly:  ''What  has  already  been  done?  " 
"What  is  the  next  step?  "  Bacon  said  in  his  Essay  on  Des- 
patch, "Iterations  are  commonly  loss  of  time.  But  there  is  no 
such  gain  of  time  as  to  iterate  often  the  state  of  the  question." 

The  significance  of  the  task.  —  The  strain  of  controlling  the 
attention  is  lessened  by  anything  v»'hich  enlarges  our  under- 
standing of  the  general  value  of  the  work  we  are  doing,  or  which 
confirms  our  belief  in  the  personal  profit  of  it  to  us.  Office 
work  can  be  illuminated  with   significance  to  the  employee 


OFFICE  DEPARTMENTS  329 

by  relating  it  to  other  things,  showing  how  it  controls  the 
shop  and  field  processes,  how  it  records  and  judges  them, 
and  how  it  searches  out  the  signs  of  their  efficiency  or  ineffi- 
ciency. Interest  may  also  be  aw^akened  by  relating  the  present 
with  the  future.  Anything  which  leads  to  a  clearer  perception 
of  the  connection  between  one's  present  work  and  one's  future 
welfare,  or  which  reveals  the  way  in  which  one's  individual 
accomphshments  unite  with  the  labor  of  others  to  form  a  result 
which  is  great  enough  to  awaken  pride  and  devotion,  will  com- 
mand the  attention.  Finally,  all  true  labor  can  be  invested 
with  interest  by  being  related  to  the  w^orker's  own  personahty 
as  a  test  of  himself,  as  an  emulation  with  others,  as  a  form  of 
self-expression,  or  as  a  contribution  which  makes  one  a  force 
in  the  world-wide  struggle  for  technical  efficiency,  artistic 
form,  or  moral  achievement.  Drudgery  is  work  done  when 
the  mind  is  shut  in  by  ignorance.  It  is  the  duty  of  manage- 
ment to  strike  off  the  shackles  of  this  drudgery,  by  reveahng  the 
things  w^hich  are  worth  while  in  the  work. 

Arrangement  of  office  departments.  —  The  first  step  in 
determining  the  space  required  for  office  departments  is  to 
ascertain  by  methods  analogous  with  those  used  by  scientific 
management  in  the  shop,  how  much  an  emploj-ee  should  be 
expected  to  do  in  a  day.  The  experience  of  office  managers 
now  indicates  in  a  general  way  what  this  is.  It  is  held,  for 
example,  that  in  an  hour  200  letters  can  be  opened  and  read 
sufficiently  to  determine  the  department  to  which  they  should 
be  referred,  that  200  orders  of  five  items  each  can  be  entered 
in  an  order  register,  that  100  square  inches  of  typewritten  work 
can  be  accomplished  by  a  $10.00  per  w^eek  girl,  and  that 
2,800  items  can  be  handled  on  an  adding  machine. 

The  next  step  is  to  determine  the  various  kinds  of  work  which 
will  have  to  be  performed,  and  the  amount  of  each,  thus  giving 
a  criterion  as  to  the  number  of  persons  required.  The  third 
step  is  to  calculate  the  space  requirements;  the  general  rule 
being  that  office  space  runs  about  100  square  feet  of  floor  per 


330      ADMIXISTRATIOX  OF  IXDUSTPJAL  EXTERPRISES 

employee,  including  the  allowance  which  must  ]>e  made  for 
aisles  and  fiu-nitm'e. 

Spacial  units.  —  The  usual  space  elements  of  office  depart- 
ments are,  the  general  files,  the  vaults,  the  coiTespondence 
department ,  the  accoimting  depanment,  a  series  of  private 
offices  for  chief  executives,  and  the  reception  and  aisle  spaces. 
If  we  assume  that  an  office  is  to  occupy  the  corner  of  a  building, 
with  hght  from  two  adjacent  sides,  a  natural  order  of  procedure 
in  making  locations  will  be  as  follows: 

1.  To  place  the  files  in  the  centre,  on  the  theorj'  that  the 
most  used  thing  should  he  at  the  most  accessible  point. 

2.  To  devote  the  hght  of  one  side  to  private  offices. 

3.  To  give  the  locations  nearest  the  hght  on  the  remaining 
side  to  the  accounting  and  coiTespondence  departments,  the 
latter  department  being  placed  farthest  from  the  centre  on 
accoimt  of  the  noise  of  the  machines. 

4.  To  place  the  vault  in  the  poorest  lighted  area. 

5.  To  locate  the  reception  space  on  an  interior  side  next  the 
hallways.  Visitors  tai'iy  in  this  space  but  a  short  time,  and 
while  in  it  are  not  engaged  in  eye-straining  work. 

6.  To  determine  the  necessary'  passage  ways,  and  the  nature 
of  the  railings  and  partitions  to  be  used. 

A  generahzed  scheme  of  office  arrangement  is  illustrated  in 
Figure  43,  the  areas  aitificially  Ughted  dm'ing  the  day  being 
indicated  by  shading. 

Equipment.  —  On  analog}' with  the  revolution  of  shop  proc 
esses  brought  about  by  the  introduction  of  the  factory  sj-^ 
tem,  there  has  come  as  a  belated  movement,  a  revolution  of 
the  mechanical  element  of  office  work.  So  far  has  this  pro- 
ceeded that  it  is  now  even  difficult  to  reconstruct  in  imagina- 
tion the  office  of  a  generation  ago.  Small  duty  windows  and 
smoky  lamps  then  permitted  but  poor  hght.  Cramped  quar- 
ters and  the  absence  of  any  intentional  sj'stem  of  ventilation 
kept  the  clerks  anemic.  High  tables  and  desks  were  pro\'ided 
at    which  workers   stooped    over   ponderous   volumes:     when 


OFFICE  DEPARTMENTS 


331 


sitting  was  possible,  the  only  facilities  provided  were  stools 
without  backs.  All  records  were  spread  in  longhand  with 
ciuills  or  steel  pens.  Each  copy  cost  as  much  to  make  as  an 
original.     The  permanent  records  were  preserved  on  the  pages 


Fig.  43.     A  Plan  of  Office  Arrangements 
The  shaded  area  will  require  artificial  illumination  throughout  the  day. 

of  unwieldy  volumes,  while  temporary  ones  were  scribbled 
upon  the  backs  of  envelopes  and  other  scraps  of  paper,  or 
found  theu"  way  into  a  variety  of  odd-sized  books.  Every- 
where there  was  lack  of  system  and  standardization,  so  that 
piles  of  confused  documents  covered  the  tables,  and  filled  the 
drawers,  and  bulged  from  the  pigeon-holes  of  desks  and  cabi- 


332      ADMIXISTRATION  OF  IXDUSTRIAL  ENTERPRISES 

nets.  The  members  of  the  office  force  were  repressed  by  bemg 
often  remmded  that  they  were  unproductive  laborers  —  a 
source  of  expense  and  not  of  revenue,  and  so  a  kind  of  necessary 
evil. 

The  ideals  which  have  brought  into  existence  modern  con- 
ditions are: 

Health  giving  surroundings  —  space,  air,  quiet. 

All  mechanical  work  to  be  performed  by  mechanism. 

A  complete  and  sj^stematic  documentary  record  of  important 
matters. 

A  strict  rule  of  ''A  place  for  ever3i;hing,  and  everjiihing  in 
its  place." 

Standardization  or  interchangeabiUty  of  parts  in  record  keep- 
ing, on  analog^^  with  interchangeabiUty  of  parts  m  machhie 
construction. 

Stenographic  and  phonographic  records.  —  The  first  inven- 
tion to  definitely  start  the  refonn  of  office  work  was  a  more 
speedy  method  of  recording  the  spoken  word.  The  Phonetic 
or  Pitman  system  of  shorthand  began  to  have  general  signifi- 
cance in  England  after  1840.  One  system  only  should  be 
allowed  in  an  office,  so  that  stenographers  can  read  each  other's 
notes.  Phonographic  dictation  claims  the  advantage  of  per- 
mitting all  the  executives  to  give  their  records  in  the  first  hours 
of  the  morning  when  the  mail  is  being  considered,  while  the 
transcribers  can  distribute  their  work  on  an  even  schedule 
throughout  the  day.  The  dictation  can  be  at  any  desired 
speed.  A  source  of  error  is  eliminated  by  making  the  inter- 
mediate record  between  dictator  and  typewriter  automatic. 
The  President's  Commission  on  Economy  and  Efficiency  of 
the  Federal  Government  calculated  the  average  cost  of  letters 
by  the  two  systems  of  dictation  to  be,  for  the  stenographic 
4.3  cents  each,  for  the  phonographic  2.7  cents  each. 

Reproduction  of  records.  —  The  first  practical  t>T)ewriter 
was  shown  at  the  Centennial  Exposition  at  Philadelphia  in 
1876.     The  introduction  of  machines  into  offices  proved,  at 


OFFICE  DEPARTMENTS  333 

first,  to  be  very  slow  work,  because  satisfactory  operators 
could  only  be  secured  through  a  prolonged  course  of  training. 
The  dupHcate  copy  or  carbon  made  on  the  typewriter  has  done 
away  with  the  old  methods  of  copying  writings,  introduced 
into  this  country  from  England  by  Thomas  Jefferson,  and 
involving  the  use  of  copy-book  and  press. 

Paragraph  dictation.  —  There  is  great  economy  of  time  and 
mental  effort  in  constructing  a  series  of  ideal  paragraphs 
covering  certain  subjects  which  it  is  found  necessary  to  treat 
frequently  in  correspondence.  These  paragraphs  may  be  desig- 
nated by  mnemonic  symbols,  and  when  so  identified,  can  be 
used  in  dictation,  interspersed  with  original  matter,  by  simply 
indicating  at  the  proper  points  the  names  or  numbers  of  the 
paragraphs  desired.  Such  standard  paragraphs  serve  as  a  sort 
of  intermediate  resource  between  personal  dictation  and  "form 
letters."  Several  paragraphs  may  be  prepared  expressing  the 
same  idea,  so  that  distinctions  as  to  fulness  and  tone  can  be 
made. 

Report  blanks.  —  The  value  of  permanent  records  is  obvious; 
the  value  of  uniformity  in  reporting  the  same  matters  in  similar 
cases  is  also  obvious.  Forms  exert  an  important  influence  in 
the  direction  of  securing  uniform  reports.  By  setting  aside 
specific  spaces  for  specific  facts  there  are  created  reminders 
which  will  stand  as  blocks  of  blank  white  paper  staring  at  the 
reporter  until  they  are  filled.  If  a  report  form  is  prepared 
and  printed  in  advance,  the  writing  required  of  the  reporter 
may  be  reduced  to  a  minimum  by  printing  all  the  permanent 
parts  of  the  record.  By  this  means  the  practical  range  of 
report  writing  may  be  much  extended  into  shop  and  field. 
Furthermore,  printed  reports  may  be  made  so  compact  and 
legible,  and  so  portable,  that  the  facts  they  contain  are  given 
greatly  increased  time  and  space  utility. 

Unit  records.  —  The  first  system  of  unit  records  to  come  into 
general  use  was  the  card  catalog  of  library  science.  This 
form  of  catalog  was  first  used  extensively  in  American  public 


334      ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

libraries.  The  s>'stem  of  unit  records,  now  ha\TDg  so  many 
applications  in  business  offices,  has  the  advantage  of  permitting 
the  concurrent  use  of  various  portions  of  the  record  —  the 
different  di"awers,  for  example  —  by  a  nimiber  of  people.  It 
facihtates  the  introduction  of  new  records,  and  the  removal 
of  obsolete  matter,  without  interrupting  the  use  of  the  hve 
material.  By  the  utihzation  of  various  s^'stems  of  indexing 
—  alphabetical,  topical,  chronological,  and  geographical  — 
facts  may  be  made  ahnost  instantly  accessible,  whatever  the 


Daca  for  5u:-:-3.5.=:z:3:ic!i. 
Summaries  and  digests  for  qmck  refer- 
ence. 


BoDT  OF  THE  Repo?.t:  This  area  to  be  more  or  leas  definitely  broken  up  into  ap- 
propriate rectasz^alar  areis  which,  as  blanks,  wiQ  remind  the  reporter  of  each 
element  re^iiuirei  in  hi;  report,  and  which,  aa  records,  will  ensure  speed  in  the 
use  of  the  form,  by  pro\-iding  a  uniform  location  for  each  class  of  information. 


RxsERVE  Space:    For  soegesticxis,  exceptional  facts,  matters  difficult  to  classify 
abcve.  or  any  pertinent  additional  data  not  planned  for  in  the  original  layout. 


Fig.  44.    Gexeral  Layout  of  a  Lxit  Record 

angle  of  approach.  By  the  use  of  duphcate  records  and  cross 
references,  as  many  avenues  of  approach  to  the  records  may  be 
opened  as  are  desii'ed. 

The  layout  of  a  unit  record.  —  The  allotment  of  space  in  the 
planning  of  a  imit  record  can  only  be  indicated  in  a  general 
way.  The  main  subdi\'isions  will  usually  consist  of  (a),  a 
small  upper  left-hand  space  which  controls  the  filing;  (6),  the 
remainder  of  the  top  space  used  for  sub-classification,  or  for 
digests  and  simmiaries  for  quick  reference;  (c),  the  body  of  the 
report  occup^-ing  the  central  space  and  yd),  a  blank  space  at 
the  bottom  for  the  entiy  of  facts  of  an  exceptional  character, 
and  for  things  left  out  by  mistake  in  the  original  design  of  the 
form. 


OFFICE  DEPARTMENTS 


335 


In  designing  forms  which  are  to  be  filled  out  on  the  type- 
writer, care  should  be  taken  to  conform  to  the  mechanism  of  the 
machine.  In  transverse  arrangement,  the  beginning  points  of 
all  matter  to  be  filled  in  by  machine  should  be  at  the  same 
distance  from  the  left  edge  of  the  form,  or  at  as  few  different 
distances  as  possible.^  The  beginning  points  can  then  be  found 
with  the  automatic  stop  of  the  machine. 

The  vertical  arrangement  should  be  controlled  by  the  line- 
spacing  of  the  machine,  so  that  work  can  proceed  down  the 
form  from  fine  to  fine,  by  simply  rotating  the  platen. 


ORDEl 


Datea 

Ship  to 
Via^ 


Wanted 
Promised 


f 


Fig.  45.    Arrangement  for  a  Typewritten  Form 


The  arrow  shows  the  number  of  different  positions  which  must  be 
found  with  the  typewriter. 

Unit  records  should  conform  to  the  sizes  of  paper  adopted 
by  the  stationery  trade  as  standard.  Accurately-sized  paper, 
cartons,  trays,  binders,  drawers,  and  cabinets  will  then  always 
be  procurable  promptly,  and  at  moderate  cost.  The  forms  for 
field  records,  which  are  to  be  carried  about  in  coat  or  hip  pockets, 
and  subjected  to  hard  usage,  should  be  compact  and  of  tough 
stock,  and  should  be  protected  by  convenient  containers,  the 
covers  of  which  will  provide  a  firm  writing  surface. 

Unit  holders.  —  When  records  are  filed  in  cabinets  composed 
of  an  assembly  of  interchangeable  units,  it  is  possible  to  add  to 

1  St.   G.  A.   Bonaventure,   Economy  in   Records,   System,  Feb.    1915, 
pp.  200-203. 


336      ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

or  subtract  from  the  width  or  height  of  the  c-3.-^-.  ^o  make  room 
for  growth  by  the  addition  of  a  imit  at  a  tiii-  .  ..:-  i  :  take  down 
or  build  up  the  files  as  may  be  requii-ed  by  changes  of  office 
arrangement  or  location. 

The  telephone.  —  A  revolutionizer  of  office  work  worthy  to 
stand  in  the  same  rank  with  the  t^^-pewiiter  is  the  telephone. 
As  the  t^'pewi'iter  has  supei-^eded  the  amanuensis,  so  the  tele- 
phone has  superseded  the  errand  boy.  As  the  telephone  is 
not  yet  supplemented  by  a  mechanism  for  recording  conversa- 
tions, it  is  judicious  practice  to  exchange  written  corffirmations 
of  oral  agreements.  In  long-distance  work  the  pecuhar  advan- 
tage of  the  telephone  over  the  telegraph,  or  even  the  letter,  is 
that  it  gives  to  each  party  an  opportimity  to  adjust  his  mental 
attitude  from  instant  to  instant  according  to  the  words  and 
intonations,  and  even  the  hesitations,  of  the  other  party. 

Computing  machines.  —  Ex-President  EUot  has  said  that 
no  person  should  i;-;  : "  -:_':  1  to  do  work  wr.i;:".  c:ai  be  as  well 
done  by  a  machine.  I:j.iu?try  has  akeady  enitred  upon  an  era 
of  economy  of  mental  effort  through  the  use  of  computing  ma- 
chines. The  substitution  of  mechanical  action  for  hiunan  toil 
in  the  petty  computations  of  addition,  subtraction,  multiphca- 
tion,  and  division  will  not  only  save  time  and  cost  in  one  element 
of  office  work  but  will  open  office  positions  to  a  class  of  persons 
pre^-iously  debarred  by  lack  of  talent  for  rapid  and  accm^ate 
calculation. 

The  office  desk.  —  The  clerk's  desk  is  as  ubiquitous  as  the 
operative's  machine,  but  unlike  it  has  passed  through  a  series 
of  misconceptions.  At  various  times  in  the  past  the  office  desk 
has  been  lookeil  upon  as  a  piece  of  ornamental  furniture,  as  a 
warehouse  for  storing  records,  and  as  a  safe  or  closet  for  locking 
up  "matters  jDending"  from  the  eyes  of  others.  It  is  primarily 
none  of  these  tilings,  but  a  mochfied  work  bench.  :  :...::.:  j 
the  onward  movement  of  docmnents  rather  than  then-  storage 
or  seclusion.  A  few  years  ago  desks  aboimded  in  ch'awers  and 
pigeon-holes  which  yawned  on  all  sides  to  swallow  up  documents 


OFFICE  DEPARTMENTS  337 

and  facilitate  their  delay.  And  these  desks  were  barricaded 
on  all  sides  with  partitions  raised  above  the  working  plane  in 
such  a  manner  as  to  screen  the  occupant  from  general  super- 
vision. The  introduction  of  fihng  cases  and  of  efficient  filing 
systems  has  drawn  most  of  the  records  out  of  private  desks, 
and  concentrated  them  where  they  are  accessible  to  all.  The 
desk  is  now  solely  to  expedite  current  business:  to  pigeon-hole 
a  thing  has  become  equivalent  to  neglecting  it. 

Schedules.  —  As  scientific  management  prescribes  a  schedule 
of  operations  for  workmen  and  machines  in  the  shops,  and  a 
routing  sj^stem  determines  the  travels  of  travelling  salesmen 
from  cit}^  to  cit}^,  so  an  office  system  must  plan  an  order  of 
events  for  office  workers.  Where  certain  tasks  have  to  be  per- 
formed at  regularly  recurrent  intervals,  a  working  chart  may  be 
prepared.  Such  a  chart  may  indicate  to  the  cashier  the  day  of 
the  month  on  which  certain  classes  of  accounts  are  to  be  paid, 
to  the  bookkeeper  when  certain  posting  is  to  be  done,  and  to  the 
clerks  when  given  collection  documents  are  to  be  sent  out. 

Standard  instructions.  —  The  job  sheets  of  the  shops  being 
out  of  the  question  for  office  work,  instructions  for  the  clerical 
force  will  usually  consist  of  a  body  of  standard  and  permanent 
orders.  These  may  be  gathered  into  a  book  of  rules,  similar 
to  the  manual  used  for  instructing  the  sales  force.  A  book  of 
rules  will  give  information  on  such  matters  as  the  prescribed 
hours  of  work,  the  method  of  reporting  time,  the  order  in  which 
vacations  are  taken,  permits  for  absence,  the  folders  and  packets 
which  are  to  be  used  in  desk  work,  rules  of  grammar  and  rhet- 
oric for  correspondence,  the  method  of  routing  letters  from 
department  to  department,  the  method  of  confirming  and 
recording  inter-departmental  communications,  and  the  manner 
of  handling  the  documents  of  matters  pending. 

Motion  study.  —  ]\Ir.  Frank  B.  Gilbreth  has  apphed  his 
skill  in  motion  study  to  office  work.  As  '^ eye-saving  "  devices 
he  recommends  ^  different  colors  of  paper  for  documents  with 
1  Third  Biennial  Report  of  the  American  Pubhc  Works  As  so. 


33S      ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

different  destinations,  the  use  of  identiMng  initials  on  the 
corners  of  documents,  and  when  several  documents  are  to  be 
brought  together,  the  printing  of  the  full  Hst  of  related  docu- 
ments on  each  sheet.  As  " hand-and-f oot  saving"  de\'ices 
he  recommends  the  printing  of  as  much  of  each  form  as  possible, 
the  free  use  of  seK-inking  rubber  stamps,  and  the  arrangement 
of  files  and  furniture  in  such  a  way  as  to  save  travel. 

BIBLIOGRAPHY 

Schulze,  J.  W.:    The  American    Office:    Its   Organization,  ]Management 

and  Records,  X.  Y.,  1913. 
Stanger,  W.  A.:  How  to  .AiTange  the  Office,  System,  Apr.  1911,  pp.  371-377. 
Seward.  Geo.  H. :  Mechanical  .Aids  in  Factory  Office  Economy,  Engineering 

^Magazine,  July  1904,  pp.  60.5-62.5. 
WooUey,  E.    ;M.:    Scientific    Management    in   the   Office,  System,  July- 
Sept.  1911. 
Nicholson,  J.  L.:  Factory  Organization  and  Costs.  X.  Y..  1909.    Chs.  41  to 

44  inch  and  Chs.  47  and  4S. 
Woolley.  E.  M.:    The  Business  Man's  Desk,  System,  Mch.  1912,  pp.  304- 

311. 
Scott,  W.  D.:    Increasing  Human  Efficiency  in  Business:  A  Contribution 

to  the  Psychology  of  Business,  X.  Y.,  1911:  Ch.  IV,  Concentration. 
Casey,  D.  Y.:   Muffling   Office  Xoises,  System,  Mch.  1914.     An  account 

of  the  researches  in  acoustics  of  Dean  W.  C.  Sab  in  of  Harvard  Univ. 
Banning,  Kendall:   More  Work  and  Fewer  Mistakes,  System,  Oct.  1913. 

Describing  the  methods  used  in  the  office  departments  of  the  Curtis 

Pubhshing  Company  of  Philadelphia. 
Clark,  Xiel  M.:   Letters  with  Less  Dictation,  System,  May  1914,  pp.  533- 

537.     Describing  the  system  of  paragraph  dictation  and  gi\-ing  a 

variety  of  sample  paragraphs. 


CHAPTER  XVII 
PURCHASING  AND  STORES  DEPARTMENTS 

The  Census  of  1900  informed  us  that  nearly  two-thirds  of  the 
cost  of  manufacturing,  and  over  one-half  of  the  gross  income 
of  manufacturing  institutions  were  expended  for  materials,  raw 
or  partly  manufactured.  These  large  proportions  make  it 
plain  why  system  and  science  should  be  appHed  in  handling 
materials.  The  handling  of  materials  involves  the  functions 
of  purchasing,  receiving,  testing,  warehousing,  and  issuing  for 
manufacture,  or  shipping  to  customers.  These  functions  are 
distinct  from  manufacturing  and  selling  operations,  and  deserve 
separate  administrative  agencies.  A  subdivision  may  be  made 
between  a  purchasing,  a  stores,  and  a  shipping  department, 
where  the  size  of  a  business  is  sufficient  to  warrant  it. 

Purchasing 
Administrative  relations.  —  The  purchasing  of  materials  and 
supplies  in  a  small  business  is  hkely  to  be  handled  by  a  general 
executive,  who  has  many  other  things  to  look  after.  In  a 
single-Une  industry,  such  as  the  manufacture  of  paper  or  flour 
or  staple  textiles,  where  the  variety  of  materials  to  be  bought 
is  small,  and  where  manufacturing  operations  are  sufficiently 
routine  to  occupy  only  a  portion  of  the  executive's  time,  the 
same  arrangement  may  exist.  Even  in  very  large  concerns,  hke 
the  leading  railways,  we  find  certain  classes  of  purchases,  such 
as  of  cars,  rails,  and  locomotives,  reserved  for  higher  officials. 
In  this  case  the  reason  is  that  the  contracts  are  of  such  size  as 
to  raise  problems  of  financing  which  must  have  the  attention  of 
headquarters. 

333 


340     ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

In  general,  however,  the  work  of  purchasing  should  be  en- 
trusted to  an  officer  who  can  specialize  upon  it.  This  is  espe- 
cially desirable  where  the  labor  problems  and  the  mechanical 
problems  are  sufficiently  engrossing  to  fully  occupy  the  officers 
in  charge  of  them,  where  a  wide  variety  of  materials  has  to 
be  assembled,  where  the  intrinsic  value  of  materials  is  high  or 
the  proportion  of  finished  product  represented  by  materials 
is  large,  where  an  unusuall}^  long  forecast  of  future  require- 
ments is  essential,  or  where  good  buying  is  chiefly  a  matter  of 
mercantile  skill  and  knowledge  of  the  state  of  the  markets. 
As  the  market  system  of  grading  becomes  more  complex, 
through  the  recognition  of  sub-grades,  and  the  multiplication 
of  private  brands,  and  as  ^'over  run"  and  '' average  run" 
of  quality  disappear  and  ''skin  grades"  take  their  place,  buying 
becomes  more  of  an  art.  The  purchasing  officer  has  come  in 
with  the  architect  who  designs  buildings,  the  engineer  who 
specifies  machinery,  and  the  employment  officer  who  selects 
men.  As  sales  managers  elaborate  their  plans  and  lay  hold  of 
psychologA%  they  must  be  met  in  the  customers'  organizations 
by  purchasing  officers  who  are  able  to  hold  their  own  with 
technology. 

Opposing  arguments.  —  There  are  various  arguments  used 
to  oppose  the  creation  of  a  purchasing  department.  One 
proprietor,  for  example,  asserts  that  he  never  has  any  trouble 
in  bujang  things,  but  only  in  selling  them.  If  other  proprietors 
were  no  more  sensible  than  he,  and  did  not  put  buying  upon  a 
more  efficient  basis,  he  would  not  have  so  much  trouble  in  sell- 
ing. It  is  equally  to  the  point  to  say  that  the  difficulties  which 
a  manufacturer  encounters  in  selling  may  be  due  to  the  fact 
that  his  products  are  rendered  unreliable  by  the  use  of 
improper  materials,  or  are  too  expensive  from  amateurish 
buying  or  waste  in  the  processes.  There  is  also  the  argument 
that  a  purchasing  department  will  increase  the  cost  of  materials. 
This  point,  which  has  its  weight,  of  course,  for  businesses  of 
small  size,  is  not  infrequently  advanced  for  cases  where  there 


PURCHASING  AND  STORES  DEPARTMENTS  341 

is  sufficient  business  to  keep  such  a  department  profitably 
occupied.  In  such  a  case,  the  argument  is  on  a  plane  with 
saying  that  an  engineer  increases  the  cost  of  power,  an  account- 
ant the  expenditure  of  funds,  and  a  trained  administrator  the 
cost  of  administration.  There  is  in  this  country,  says  Ex- 
President  Eliot,  a  general  habit  of  undervaluing  the  work  of  the 
expert.  The  principle  of  the  division  of  labor,  which  is  so 
universally  understood  with  reference  to  manual  operations, 
cannot  be  followed  by  many  minds  in  its  application  to  the 
work  of  service  departments  or  the  performance  of  administra- 
tive functions.  There  is  another  answer  to  the  objection.  To 
create  a  purchasing  department  does  not  originate  any  new 
functions  without  which  a  concern  was  previously  able  to  get 
along.  Purchasing  has  to  be  done  whether  there  is  a  purchas- 
ing officer  or  not:  a  stock  must  be  carried  whether  it  is  in  a 
stock  room  or  hidden  away  in  the  corners  of  the  shops  by  the 
foremen;  inspection  has  to  be  done  either  in  advance,  or  with 
humiliation  after  an  angry  customer  has  returned  defective 
goods.  To  organize  a  special  department  simply  takes  a  group 
of  responsibilities,  which  previously  have  been  scattered  around 
to  annoy  officers  who  are  primarily  interested  in  other  things, 
and  concentrates  them  upon  a  man  who  is  specially  fitted  for 
the  work,  and  who  can  gain  expertness  by  continuous  applica- 
tion to  one  thing. 

A  third  objection  is  that  of  the  foreman  who  says  that  a 
purchasing  officer  cuts  you  down  on  quantity,  delays  things, 
and  finally  gives  you  something  different  from  what  you  had 
asked  for.  This  is  an  objection  to  an  inefficient  purchasing 
plan.  When  properly  organized  the  purchasing  department  ex- 
ercises no  control  over  either  the  quantities  or  qualities  called 
for  by  authorized  requisitions.  If  the  purchasing  officer  dis- 
covers that  unnecessary  quantities  or  qualities  are  being  used 
he  has  to  establish  the  fact  with  the  general  superintendent. 
Any  change  in  the  materials  specified  for  jobs  will  be  on  the 
orders  of  the  latter.     As  for  delay,  experience  shows  that  the 


342      ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

cMcf  way  of  avoiding  it  is  to  concentrate  responsibility  on  one 
person. 

Functions.  —  It  is  not  an  imcommon  thing  to  find  that  a 
clerk  of  pureh^  office  experience  has  been  installed  as  purchasing 
agent,  because  it  has  been  obser\^ed  that  a  purchasing  agent 
has  an  office,  keeps  records,  handles  correspondence,  and  ad- 
ministers an  office  process.  The  real  work  of  a  purchasing 
officer  is  to  mediate  between  an  outside  market,  ruled  bj^ 
commercial  forces,  and  the  shops  of  his  company,  ruled  by 
technical  considerations.  He  auns  to  serve  the  shops  promptly 
with  the  materials  wanted,  at  minimtmi  cost,  and  yet  buy  in 
commercial  lots  and  insert  the  mmimum  of  price-increasing 
specifications  into  his  bming  contracts.  He  equates  between 
a  set  of  fluctuatmg  price  scales  and  a  set  of  subtle  Cjuahty  scales. 
To  take  the  best  advantage  of  prices  he  needs  to  be  an  expert 
in  quotations,  discounts,  datings.  freights,  packing,  the  repu- 
tations of  suppHers,  and  the  legal  habihties  of  the  sale  contract. 
To  understand  the  quahty  scale  he  needs  to  know  his  company's 
products  thoroughly.  The  clerical  work  he  supervises  is  the 
smallest  part  of  his  troubles. 

Limits  of  authority.  —  It  is  weU  to  clearly  define  the  field  of 
the  pm-chasing  officer.  Some  of  the  restrictions  which  maj^  be 
desu'able  in  particular  cases  are: 

1.  Pm'chases  to  be  made  only  on  the  requisition  of  the  stores 
department,  or  of  designated  officers  of  the  manufacturing  and 
engineering  departments. 

2.  Requisitions  to  be  made  only  on  the  authorized  fomis 
supphed  for  the  ptupose,  and  to  be  signed  bj"  the  proper  officers. 

3.  Purchases  to  be  regulated  in  such  a  manner  as  to  main- 
tain the  supply  of  each  article  witliin  the  maximmn  and 
niinimmn  stock  hmits  set  for  it. 

4.  Various  hmits  may  be  placed  upon  the  amount  of  indi- 
vidual pm'chases  or  upon  the  rate  of  pm'chasing,  such  as 
(a),  pm'chases  not  to  exceed  three  (or  sLx)  months'  average  con- 
sumption;  (5),  total  purchases  in  any  one  month  not  to  exceed 


PURCHASING  AND  STORES  DEPARTMENTS          343 
dollars;  (c),  no  single  purchases  to  be  made  exceeding 


dollars,  except  with  the  approval  of  the  general  manager; 
(d),  the  purchase  of  designated  articles  or  classes  of  articles, 
such  as  cars  or  locomotives  in  railway  practice,  to  be  reserved 
to  higher  officials.  Such  limitations  avoid  the  creation  of  un- 
usual current  liabilities  without  the  knowledge  of  the  officers 
who  will  be  responsible  for  making  the  necessary  financial 
arrangements. 

5.  In  the  case  of  certain  classes  of  articles  the  purchasing 
officer  may  be  instructed  to  secure  competitive  bids,  and  to 
make  purchases  only  of  the  lowest  bidder. 

Equipment.  —  Equipment  may  be  inferred  from  functions. 
First  of  all,  the  purchasing  officer  should  be  provided  with 
information  concerning  supplying  concerns. 

1.  He  should  have  a  list  of  manufacturers  and  dealers  sup- 
plying the  articles  regularly  used,  and  of  eligible  bidders  pre- 
pared to  make  Sbuy  special  products  which  may  be  required. 
This  information  should  include  the  location  of  the  plant  and 
sales  offices,  the  names  of  the  officers  to  be  dealt  with,  freight 
rates,  average  time  taken  in  shipment,  whether  orders  can  be 
filled  from  stock  or  are  to  be  manufactured,  time  required  to 
manufacture,  maximum  size  of  orders  which  can  be  handled, 
general  reputation  as  to  honesty,  promptness,  and  technical 
competence. 

2.  A  file  of  catalogs  of  supplying  houses  should  be  collected. 
These  may  be  arranged  alphabetically  according  to  firm  name, 
with  a  cross-reference  catalog  according  to  articles;  or  they 
may  be  classed  according  to  articles,  with  a  cross-reference 
catalog  of  firms. 

3.  A  record  of  prices  paid  should  be  kept,  including  all  quo- 
tations, discounts,  and  datings  offered,  with  careful  notation  of 
the  authority  for  the  information. 

The  purchasing  agent  will  need  a  number  of  records  with 
reference  to  the  shops  of  his  own  concern: 

4.  The  amounts  of  leading  materials  consumed  should  be 


344      ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

tabulated  per  month  and  year  for  some  time  past,  to  indicate 
how  long  a  given  lot  will  last.  Knowledge  of  any  special  re- 
quirements cf  the  near  future  should  be  communicated  to 
the  purchasing  officer  in  due  time  from  the  estimating  depart- 
ment, or  whatever  authorities  have  the  advance  schedule  in 
charge. 

5.  A  record  of  the  experience  of  the  manufacturing  depart- 
ments with  previous  stock  should  be  kept,  so  that  there  shall 
be  no  reorder  of  defective  materials.  All  defects  reported,  and 
all  percentages  of  waste,  should  be  tabulated  against  batches 
of  materials,  and  against  the  supph-ing  firms. 

6.  If  tests  have  been  made  of  samples  of  untried  materials, 
the  record  of  these  tests  should  be  supplied  to  the  purchasing 
officer. 

With  reference  to  the  transactions  of  his  own  office,  the  pur- 
chasing officer  should  know: 

7.  What  the  size  of  the  usual  previous  order  has  been. 

8.  What  prices  have  been  paid  pre\dously. 

9.  What  delay  in  delivery,  what  shortage,  or  what  depart- 
ure from  specifications  has  been  experienced  in  deahng  with 
certain  concerns. 

The  act  of  purchase.  —  Pm-chasing  involves  the  making  of 
an  original  requisition,  the  placing  of  the  order,  the  following 
up  of  the  order  until  delivery  is  secured,  the  checking-in  of 
merchandise  as  complete  at  the  receiving  office,  the  forwarding 
of  the  bill  to  the  accounting  department  for  pa^Taent,  and  the 
final  payment. 

Requisitions.  —  ]\Ir.  D.  S.  Kimball  says:  '^The  demand  for 
materials  grows  naturally  out  of  the  needs  of  the  business  and 
cannot,  therefore,  originate  with  the  purchasing  agent.  In 
a  shop  devoted  to  general  repairs,  the  reciuisitions  for  materials 
would,  most  naturally,  originate  with  the  foremen  in  charge  of 
work,  since  they  will  know  better  than  any  one  else  what  is 
needed.  In  a  shop  building  new  work  to  order  only,  such  as  an 
engine  works,  these  material  requisitions  for  direct  material 


PURCHASING  AND  STORES  DEPARTMENTS  345 

would  originate  in  the  engineering  department,  though  they 
might  pass  through  the  storekeeper's  hands  before  going  to 
the  purchasing  agent  in  order  to  check  off  material  on  hand.     In 
a  shop  manufacturing  standardized  articles,  as  knives,  watches, 
etc.,  the  material  requisition  would  naturally  originate  in  the 
stores  department,  which  is  the  reservoir  that  feeds  the  factory, 
and  here  also  would  originate,  always,  the  requisitions  for  all 
indirect  and  expense  material.     In  a  shop  doing  all  three  of 
these    classes    of    production,    therefore,    material    requisition 
might  originate  from  several  sources;    and  just  as  it  is  neces- 
sary^ to  centrahze  the  authority  and  responsibihty  of  the  pur- 
chases based  on  these  material  requisitions,  so  it  is  absolutely 
necessary  to  fix  definitely  the  authority  and  responsibihty  of 
originating  these  requisitions."  ^     Requisitions  which   cannot 
be  filled  within  a  reasonable  time  should  be  returned  to  the 
maker,   accompanied  by  information  as  to  when  the  mate- 
rial will  be  available.     This  will  leave  the  way  open  for  the 
resubmission  of  the  requisition  under  the  condition  of  delayed 
dehvery,  or  the  specifying  of  some  other  material,  or  the  aban- 
donment of  the  project  entirely. 

The  order.2  —  The  order  is  a  legal  contract  and  should  be 
drawn  with  care.  Its  major  parts  are,  the  names  of  the  parties 
involved,  the  description  of  the  goods,  the  statement  of  the 
price  with  all  terms  affecting  it,  and  the  specification  of  the 
time  and  place  of  dehvery.  Where  large  affairs  are  involved 
it  is  convenient  to  prepare  a  model  contract,  elaborate  it  until 
all  essential  conditions  are  covered  and  the  language  has  been 
made  exact,  submit  it  to  a  competent  attorney  for  revision, 
and  adopt  it  as  the  standard  to  be  used  in  all  cases  where  spe- 
cial conditions  do  not  preclude.  The  clauses  of  such  a  contract 
should  include  — 

1.   A  definition  of  the  merchandise  in^^olved. 

1  Dexter   S.    KimbaU,    Principles   of   Industrial   Organization    N    Y 
1913,  p.  202.  *      *' 

*  Compare  Chapter  XVIII,  Selling,  p.  367. 


346     ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

2.  The  statement  of  allowable  variations  in  quality,  quan- 
tity, or  dimensions. 

3.  Date  (or  date  limits)  of  shipment  or  delivery.  Dates  of, 
or  rates  per  week  or  month  of,  shipments  or  deliveries. 

4.  An  exact  statement  as  to  when  title  passes. 

5.  Price,  with  a  statement  of  discounts  and  of  the  time  and 
manner  of  payment. 

6.  Rights  of  assignment  or  cancellation  agreed  upon.  Cir- 
cumstances under  which  instalments  are  to  be  treated  as 
separate  contracts. 

7.  Definition  of  any  unusual  or  ambiguous  terms  and  a 
waiver  of  rights  due  to  misunderstanding  of  the  terms  of  the 
contract.  To  illustrate,  ''immediate  "  shipment  may  be  de- 
fined as  within  twenty-four  hours  of  the  receipt  of  the  order, 
''prompt  "  as  within  three  days,  and  "in  a  reasonable  time" 
as  within  ten  days. 

8.  An  enumeration  of  the  documents  composing  the  con- 
tract. Statements  made  in  designated  letters  or  pubUcations 
may  be  referred  to  as  express  warranties. 

9.  The  description  of  any  special  method  to  be  followed  in 
setthng  disputes.  No  provision  aiming  to  deprive  either  party 
of  its  final  appeal  to  the  courts  should  be  introduced,  for  such 
clauses  involve  the  attempt  to  oust  the  courts  from  their  juris- 
diction, and  hence  are  null  and  void. 

Specifications.  —  The  quality  of  anything  purchased  may  be 
determined,  roughly,  as  an  inference  from  the  price.  To  trust 
to  this  uncertain  relation  is  to  buy  on  price.  Again,  the  qual- 
ity may  be  judged  from  the  seller's  reputation.  To  rely  upon 
this  is  to  buy  upon  reputation.  The  only  way  in  w^hich  close 
buying  can  be  done  is  to  frame  an  exact  conception  of  the  thing 
wanted,  on  the  basis  of  a  knowledge  of  the  action  of  materials 
in  the  process  of  manufactuer  and  of  their  effect  upon  the 
quaUty  of  the  finished  product.  To  make  such  exact  knowledge 
control  the  buying  process  is  to  buy  on  specification.  Specifi- 
cations may  originate  with  either   the    seller    or  the   buyer. 


PURCHASING  AND  STORES  DEPARTMENTS  347 

The  usual  custom  of  the  past  has  been  for  the  seller  to  specify 
what  he  had;  the  growing  practice  of  the  present  is  for  the  buyer 
to  set  forth  in  detail  what  he  wants. 

Seller's  specifications.  —  Seller's  specifications  are  the  des- 
criptions found  in  catalogs  and  letters  and  advertisements,  and 
in  the  communications  of  authorized  agents.  The  law  con- 
siders these  to  be  a  part  of  the  contract  of  sale  as  express  war- 
ranties, provided  they  have  exerted  a  material  influence  as 
inducements  with  the  buyer.  It  is  particularly  to  be  noticed, 
however,  that  no  affirmation  of  mere  opinion  on  the  part  of  the 
seller,  such  as  that  he  believes  the  goods  will  wear  well,  or  that 
he  expects  their  price  to  increase,  constitutes  a  warranty.  Some 
allowance  is  also  made  by  the  courts  for  mere  puffery,  or  deal- 
er's talk,  such  as  that  the  goods  are  the  best  in  the  world,  or 
that  they  are  worth  ten  times  the  price.  If  a  sample  is  offered 
by  the  seller  under  conditions  which  imply  that  it  is  intended 
to  be  representative,  it  partakes  of  the  nature  of  a  description, 
and  creates  the  implied  warranty  that  the  bulk  of  the  goods 
furnished  will  conform  to  the  sample.  If  the  seller  is  a  manu- 
facturer, and  so  presumbly  possessed  of  an  intimate  knowledge 
of  the  nature  of  the  sample  offered,  there  is  a  fm^ther  implied 
warranty  that  the  goods  furnished  shall  be  merchantable,  that 
is  to  say,  passable  as  representative  of  the  kind  of  merchandise 
which  passes  current  under  the  given  designation;  and  that 
they  are  free  from  such  defects  as  are  not  discoverable  by  a 
reasonable  examination  of  the  sample.  If,  however,  the  buyer 
has  ample  opportunity  and  talent  to  discover  the  defects  of 
the  sample,  and  there  is  no  fraud  involved  in  the  transaction, 
the  rule  of  caveat  onptor  applies. 

Buyer's  specifications.  —  To  avoid  the  uncertainties  of  inter- 
pretation and  of  legal  liability  involved  in  seller's  samples  and 
trade  descriptions  and  advertising,  the  practice  is  growing 
among  large  concerns  of  buying  materials  and  suppHes  on  the 
basis  of  specifications  prepared  by  themselves.  These  are 
drawn  up  by  the  purchasing  department,  working  in  conjunc- 


348      ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISE^ 

tion  with  the  testing  laboratories  aiid  the  shops,  and  are  referred 
to  in  the  order  as  forming  a  part  of  the  contract.  The  seller 
is  bound  by  the  unpUed  warranty  that  the  goods  supphed  are 
of  the  kind  described,  or  will  answer  the  purposes  indicated 
by  the  buyer. 

A  couple  of  examples  will  best  convey  an  idea  of  the  degi'ee 
of  precision  which  good  practice  now  attains.  The  fii'st 
description  relates  to  foundry-  pig  u'on  as  bought  by  a  western 
manufacturer  of  agricultm'al  miplements. 

*' Under  these  specifications  we  desire  a  good  clean  iron,  as 
free  as  possible  from  dross,  kish.  oxide,  sand,  etc.  .  .  . 

''All  grades  of  pig  iron  will  be  bought  strictly  by  analysis, 
and  must  conform  to  the  following  specified  per  cents: 

Per  cent 

Sihcon  must  not  be  less  than 2 .  50 

Sulphur  must  not  exceed 0 .  03 

Phosphorus  nmst  not  exceed 0 .  60 

Manganese  must  not  exceed 0 .  50 

Total  carbon,  not  specified. 

''The  carbons  will  usually  be  between  3  and  4.50  per  cent,  in 
this  grade. 

"Any  car  of  Xo.  1  foimdiy  pig  which  shows  on  analysis  less 
than  2.40  per  cent  of  sihcon  or  more  than  0.035  per  cent  of 
sulphm'  will  be  rejected. 

"When  a  car  of  pig  iron  is  received  it  will  immediately  be 
sampled  by  an  experienced  man  (professional  sampler),  who 
will  select  a  certain  niunber  of  pigs  from  different  parts  of  the 
car  which,  according  to  his  judgment,  shall  represent  the 
average  quahty  of  the  u*on.  These  pigs  will  be  broken,  and 
drilhngs  taken  from  the  face  of  the  fracture  will  be  sent  to  the 
laboratoiy  for  a  chemical  analysis.  The  analysis  will  decide 
the  acceptance  or  rejection  of  the  iron. 

"Rejected  cars  will  be  held  subject  to  the  shipper's  orders. 

"In  case  of  dispute  the  furnace  or  the  seller  shall  have  the 


PURCHASING  AND  STORES  DEPARTMENTS  349 

right  to  resample  the  iron  in  conjunction  with  the  buyer,  each 
to  select  five  pigs.  Drillings  from  the  ten  pigs,  after  being 
well  mixed,  will  be  divided  into  three  different  samples,  one 
lot  to  be  analyzed  by  the  furnace,  one  by  our  laboratory,  and 
one  by  a  disinterested  chemist,  agreed  upon  by  the  parties  in 
dispute.  The  two  analyses  nearest  ahke  will  be  accepted  as 
the  proper  chemical  composition  of  the  iron. 

''In  all  chemical  work  relating  to  pig  or  cast  iron  it  is  under- 
stood that  the  standardized  drillings  furnished  by  the  American 
Foundrymen's  Association  are  to  be  used  as  standards." 

These  paragraphs  in  the  original  contract  are  followed  by  a 
statement  of  the  chemical  methods  used  in  the  laboratory,  so 
that  suppliers  may  anticipate  results  by  making  their  analyses 
in  the  same  manner  as  the  buyer  will  make  them  upon  delivery. 

The  second  illustration  reproduces  the  specifications  of  the 
United  States  Navy  Department  for  toilet  soap: 

''To  be  milled,  neutral,  soda  soap,  made  from  clean,  whole- 
some fat,  and  as  free  as  possible  from  water,  rosin,  and  mineral, 
starchy,  or  foreign  material.  Analj^sis  must  show  not  more 
than  three-tenths  of  1  per  cent  of  mineral  matter,  three-tenths 
of  1  per  cent  of  carbonated  alkali,  calculated  as  carbonate  of 
soda  (Na2003),  one-half  of  a  per  cent  uncombined  alkaH,  cal- 
culated as  caustic  soda  (NaOH),  one  per  cent  common  salt, 
or  14  per  cent  of  water.  A  cylinder  of  soap,  seven-eighths  of 
an  inch  in  diameter  and  1  inch  high,  cut  from  a  cake,  must  sus- 
tain a  weight  of  15  pounds  for  five  minutes  without  crushing  or 
compressing  more  than  one-sixteenth  of  an  inch.  Soap  will 
be  rejected  if  made  so  largely  of  cocoanut  oil,  palm  oil,  or  other 
fat  of  characteristic  smell  that  the  peculiar  odor  remains  on 
the  hands  after  using.  To  be  perfumed  with  the  character- 
istic odor  of  lavender,  perfume  to  add  not  more  than  5  cents  per 
pound  to  the  cost  of  the  soap. 

"Cakes  to  be  oval,  to  weigh  about  4  ounces;  color,  light 
brown.  Each  cake  to  be  wrapped  in  soft  paper:  to  be  packed 
in  neat  paper  boxes,  three  cakes  in  a  box. 


350     ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

''The  soap  will  be  bought  by  the  pound. 

"For  inspection,  one  cake,  taken  at  random,  will  be  exam- 
ined, and  the  lot  will  be  accepted  or  rejected  on  this  sample 
cake. 

''The  weight  of  the  soap  to  be  paid  for  will  be  determined  by 
the  amount  of  combined  alkali  or  its  equivalent  in  the  lot; 
this  to  be  found  by  multiplying  the  weight  in  grains  of  com- 
bined alkali  in  the  sample  cake  by  the  number  of  cakes,  then 
dividing  this  product  by  630,  the  number  of  grains  of  combmed 
alkali  assumed  as  a  standard  pound  of  soap." 

Specifications  should  embody  a  clear  and  concise  description 
of  what  is  wanted.  If  there  is  more  than  one  possible  meaning, 
the  suppher  must  allow  in  his  bid  for  the  meaning  most  unfavor- 
able to  himself.  The  specifications  should  explain  the  manner 
in  which  samples  will  be  drawn  and  laboratory  tests  conducted, 
should  indicate  what  may  be  done  in  case  of  dispute,  and  should 
state  what  disposition  will  be  made  of  rejected  material.  Un- 
reasonable conditions  should  not  be  imposed,  for  unreasonable- 
ness operates  as  a  legal  defense  for  non-performance.  Xo 
specification  should  be  introduced  which  it  is  not  intended  to 
enforce,  for  every  restriction  narrows  the  market  and,  being 
taken  into  account  by  the  seller  in  safeguarding  himself, 
increases  the  cost. 

When  specifications  are  inapplicable.  —  ]\Iodern  scientific 
specifications  cannot  be  used:  (a),  where  materials  are  wanted 
which  pass  through  the  hands  of  a  produce  exchange,  such  as 
the  New  York  Cotton  Exchange  or  the  Chicago  Board  of  Trade, 
on  wliich  grading  is  done  exclusive^  according  to  the  rules  of 
the  organization;  (6),  where  unfabricated  materials,  such  as 
wild  rubber  gathered  by  the  natives  of  the  Amazon  valle}^, 
originate  with  a  large  number  of  small  producers  who  are  not 
under  control;  (c),  where  materials  come  from  a  distance, 
passing  through  the  hands  of  many  intermediaiy  traders,  as  is 
the  case  wdth  European  manufactures  generally,  so  that  the 
buj^er's  requirements  cannot  be  referred  back  from  hand  to 


PURCHASING  AND  STORES  DEPARTMENTS  351 

hand  to  the  sources  of  supply;  (d),  where  materials  are 
controlled  by  a  monopoly  or  are  produced  by  a  secret 
process. 

The  general  effect  of  buymg  under  scientific  specifications  is 
to  raise  the  standards  of  both  buyers  and  sellers.  The  buyer 
must  live  up  to  his  specifications  or  lose  by  their  use;  the  sup- 
pher  must  command  sufficient  knowledge  to  know  whether 
or  not  his  product  will  pass  the  buyer's  tests.  One  of  Andrew 
Carnegie's  four  rules  for  manufacturers  is,  '' Subject  all  prod- 
ucts to  more  rigid  tests  than  purchasers  require.  A  reputa- 
tion for  producing  the  best  is  a  sure  foundation  upon  which  to 
build." 

The  size  of  the  average  order.  —  Some  of  the  attractions 
w^hich  move  purchasing  agents  to  place  large  orders  are,  the 
insurance  which  an  ample  stock  gives  that  factory  operations 
will  not  be  suspended  by  raih'oad  strikes  or  other  interruptions 
of  supply;  the  economy  of  large  orders  in  the  matter  of  freight, 
cartage,  and  receiving  expenses;  a  favorable  aspect  of  the  market 
which  seems  to  recommend  the  accumulation  of  a  stock  in  an- 
ticipation of  future  requirements,  and  quantity  prices.  Toward 
small  and  frequent  orders  the  inducements  are,  a  smaller  invest- 
ment in  stock,  less  opportunity  for  physical  deterioration  and 
for  obsolescence  of  class  or  design,  decreased  hazard  of  loading 
up  at  top  prices  or  of  entering  dull  seasons  with  hesivy  stocks, 
the  possibihty  of  securing  quantity  prices  on  the  basis  of  annual 
patronage  rather  than  of  individual  orders,  and  a  more  even  dis- 
tribution of  bills  payable. 

Standardization.  —  The  utmost  advantage  of  buying  on  a 
large  scale,  consistent  with  hght  stocks  and  rapid  turn-over, 
is  only  obtainable  by  standardizing  consumption  upon  a  few 
articles.  An  establishment  without  scientific  purchasing  is 
almost  certain  to  show,  in  each  class  of  stock,  a  variety  of  qual- 
ities, designs,  and  makes,  representing  the  diverse  opinions  of 
different  foremen  and  department  heads,  but  intended  to 
answer  substantially  the  same  purpose.     The  stream  of  stock 


352      ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

change  flows  slowly  through  a  wide  variety  of  t3pes,  just  as  a 
river  flows  slowh^  through  a  multitude  of  bayous:  it  is  possible 
to  place  small  orders,  and  yet  have  a  store  room  choked  with 
stock.  To  attain  the  opposite  condition  of  hea\y  orders  and  a 
light  stock,  there  must  be  concentration  of  demand  upon  a 
few  things.  The  process  of  throwing  out  unnecessary  variant 
types  of  stores  must  rest  upon  a  thorough  examination  of 
shop  requirements.  It  is  likely  to  involve  some  remodelling 
of  operations,  possibly  also  some  redesigning  of  finished  prod- 
ucts. When  the  best  has  at  length  been  chosen,  usage  must 
be  standardized,  that  is  to  say,  individual  cases  must  be  made 
to  conform  to  the  rule. 

Promptness.  —  A  shop  wliich  is  ready  for  a  material  is  not 
satisfied  with  the  assurance  that  it  has  been  ordered.  Results 
mean  the  materials  at  hand  when  wanted.  Promptness  is 
the  chief  means  of  preventing  foremen  from  accumulating 
private  reserves.  Of  supph'  departments  which  are  slow  and 
sting}^  Mr.  H.  C.  Pierce  has  said,  "Their  idea  was  that  by  dela}' 
and  obstruction  some  other  arrangement  would  be  made,  and 
the  material  would  not  be  needed  at  all.  For  that  reason, 
departments  that  had  work  to  do  did  not  have  confidence  m 
getting  what  they  wanted,  and  consequently  laid  in  large 
stocks  and  made  provision  simply  because  they  knew  by  experi- 
ence they  never  could  get  anything  when  they  wanted  it.  This 
led  to  enormous  losses  in  the  way  of  material  deteriorating  and 
becoming  obsolete."  ^ 

The  schedule  of  deliveries.  —  The  larger  the  patronage 
controlled  by  a  purchasing  officer,  and  the  more  the  supplying 
houses  are  impressed  by  the  efficienc}'  of  the  buying  depart- 
ment, the  more  exacting  it  is  possible  for  the  buyer  to  be  in  the 
matter  of  the  schedule  of  the  time  and  place  of  deliveries.  An 
accurate  schedule,  which  brings  in  materials  at  the  times  when 
they  are  wanted  for  use,  manifestly  decreases  the  expense  for 
stock,  and  stock-room  operation.  It  is  a  matter  of  common 
1  H.  C.  Pierce,  The  Supply  Department,  X.  Y.,  1911,  p.  110. 


PURCHASING  AND  STORES  DEPARTMENTS  353 

report  that  certain  large  automobile  manufacturers  in  Detroit 
are  able  to  specify  not  merely  the  day  of  shipment,  but  the 
day  and  hour  of  delivery  at  the  plant,  and  the  warehouse  door 
at  which  materials  must  be  presented. 

Hedging.  —  The  fluctuation  of  the  prices  of  raw  materials 
is  a  hazard  for  the  purchasing  officer  and  his  employer  which  is 
unusually  intense  on  the  nervous  and  semi-isolated  markets 
of  the  United  States.  In  those  lines  of  manufacturing  where 
there  is  used  a  large  amount  of  any  material  which  is  subject 
to  organized  and  speculative  trading,  the  fluctuations  of  the 
prices  of  raw  materials  may  cause  the  profits  of  the  business  to 
depend  in  a  large  degree  upon  the  skill  of  the  buyer.  The 
possibihties  of  loss  and  gain  may  be  illustrated  by  tabulating 
the  annual  maximum  and  minimum  prices  of  two  or  three 
basic  commodities. 

Middling  Upland  Spot  Cotton  on  the  N.  Y.  Cotton  Exchange 

(Cents  per  pound) 

Year                                            Maximum  Minimum 

1909-1910 19.75  12.40 

1910-1911 16.15  11.60 

1911-1912 13.40  9.20 

1912-1913 13.40  10.75 

1913-1914 14.50  12.30 

Local  No.  2  Foundry  Pig  Iron  at  Chicago 
(Average  monthly  prices  per  ton  of  2240  lbs.) 

Year                                                  Maximum  Minimum 

1910 $19.00  $16.00 

1911 15.50  14.00 

1912 18.00  14.00 

1913 17.90  14.60 

1914 14.25  12.56 


354      ADMIXISTRATIOX  OF  INDUSTRIAL  EXTERPRISES 

Niunber  2  Cash  ^Mieat  at  Chicago 
(Cents  per  bushel) 

Year                                                 Maximum  Minimum 

1910 127.50  89.50 

1911 101.00  83.25 

1912 120.00  93.375 

1913 115.40  84.00 

1914 123.50  77.75 

An  experienced  mill  buyer  of  cotton  has  said:  ''As  a  general 
rule,  it  is  more  disastrous  to  buy  at  too  liigh  a  price  than  to 
fail  to  buy  at  a  low  price,  because  if  cotton  advances,  in  normal 
conditions  of  the  market,  goods  will  advance  in  proportion,  but 
if  cotton  dechnes  after  you  have  bought,  the  market  for  goods 
is  apt  to  decline  also,  leading  you  to  take  a  loss  on  your  high- 
priced  cotton."  ^  This  is  equivalent  to  saving  that  it  is  worse 
to  make  an  actual  loss  than  to  miss  a  possible  profit. 

If,  in  the  case  of  a  fluctuating  commodity,  there  is  an  organ- 
ized market  for  future  trading,  the  buyer  may  eliminate  the 
greater  part  of  his  risk,  and  insure  to  his  concern  the  normal 
profits  of  converting,  by  means  of  hedging  transactions.  The 
hedging  operation  will  take  one  of  two  forms,  according  as  it  is 
to  offset  a  long  interest  (the  interest  created  by  owning  a  com- 
modity) or  a  short  interest  (the  mterest  created  by  engagmg  to 
dehver  a  commodity,  or  its  manufactured  derivatives,  without 
owning  it).  If  a  mill  possesses  a  stock  of  raw  material  and  has 
not  contracted  for  the  sale  of  the  corresponchng  product,  the  ap- 
propriate hedgmg  transaction  will  be  to  seU  on  the  Exchange  an 
equal  amount  of  that  material  for  deUver\'  at  approximately 
the  date  or  dates  when  the  stock  or  its  product  will  be  sold.  If 
then,  in  the  inters'al  while  thus  protected,  the  price  of  the  mate- 
rial falls  there  will  be  a  loss  on  the  stock  held,  but  an  equivalent 
gain  on  the  future  transaction,  because  the  material  required 

1  J.  R.  MacCoU,  The  Business  Side  of  Cotton  Manufacturing,  Trans. 
N.  Eng.  Cotton  Mfrs.  Asso.,  Xo.  77,  Sept.  1901. 


PURCHASING  AND  STORES  DEPARTMENTS  355 

to  fill  it  can  be  purchased  at  correspondingly  less  than  the 
price  which  the  contract  calls  for.  If  the  price  rises,  the  gain 
on  stock  will  be  offset  by  an  equal  loss  on  the  future  transaction. 
In  case  a  mill  contracts  for  the  sale  of  its  output  in  advance  of 
the  purchase  of  the  necessary  raw  materials,  the  proper  hedging 
transaction  is  to  enter  into  future  contracts  upon  the  Exchange 
to  receive  the  respective  amount  of  basic  material,  at  the  period 
when  it  is  expected  to  buy  the  actual  supplies  for  manufacture. 
Future  contracts  are  usually  closed  without  actual  receipt  or 
delivery  of  commodities;  and  this  is  done  by  selling  them 
just  prior  to  maturity  to  brokers  for  ring  settlement  or  mutual 
cancellation. 

While  dealings  in  futures  offer  considerable  relief,  they  do 
not  provide  a  perfect  means  of  extinguishing  risk,  for  the 
advances  and  declines  of  futures  do  not  exactly  correspond  to 
the  advances  and  declines  of  the  spot  prices  of  the  same  mate- 
rials; still  less  perfectly  do  they  correspond  to  the  fluctuations 
of  the  manufactured  derivatives  of  those  materials. 

Honesty.  —  Honesty  must  be  a  militant  virtue  with  the 
purchasing  officer.  This  is  so  because  he  has  in  his  hands  a 
patronage  for  which  outsiders  are  in  active  competition,  and 
because  the  results  of  private  advantage  can  only  be  made 
apparent  by  cost  accounting,  a  branch  of  accounting  which  is 
much  less  conclusive  in  its  results  than  that  employed  for  keep- 
ing track  of  cash.  To  delegate  to  another  the  power  of  pur- 
chasing supplies  is  to  furnish  money  —  the  measurement  of 
which  is  exact  enough  —  but  to  hold  for  quahty  in  commodities, 
the  measurement  of  which  has  as  yet  been  made  exact  only  in 
the  case  of  a  few  materials.  The  problem  of  answerability 
in  that  form  of  delegated  authority  where  the  quality  scale 
covers  the  value  scale  from  direct  access  is  an  ancient  one. 
Kipling  says, 

"Who  shall  doubt  the  secret  hid 
Under  Cheop's  pyramid 
Is  that  the  contractor  did 


356      ADMIXISTRATIOX  OF  IXDUSTPJAL  EXTERPRISES 

Cheops  out  of  several  millions; 

Or  that  Joseph's  sudden  rise 

To  Controller  of  Supplies 

Was  a  fraud  of  monstrous  size 

On  Iving  Pharaoh's  swart  ci^'ihans." 

The  risk  entitles  the  purchasing  officer  to  even'  moral  safe- 
guard his  employer  can  throw  aroimd  him.  To  leave  him  with- 
out the  checks  of  an  eflBcient  s^-stem  of  siiper\'ision  is  not  so 
much  to  trust  him  as  to  abandon  him  in  a  moral  contest.  Some 
precautionary-  measures  are  as  follows: 

1.  The  first  step  is  to  select  a  man  of  soimd  training  and 
good  general  ideas  as  to  the  methods  and  objects  of  life,  and 
one  possessed  of  sufficient  moral  courage  to  hold  facts  persist- 
ently in  mind  when  they  are  personally  chsagreeable.  It  is 
well  if  such  a  man  has  formed  the  habit  of  making  sharp  and 
final  decisions  with  reasonal '1-  ';^  "  rnptness. 

2.  The  second  safeguard  is  i-  Liignify  the  man  and  his  fimc- 
tion.  The  conception  that  we  find  others  entertaining  of  us 
and  of  oiu*  work  is  a  mighty  force  in  developing  a  corresponding 
chgnity  of  character  within  us. 

3.  A  special  case  of  this  poUcy  is  to  concentrate  bm^ing  in  the 
hands  of  one  or  more  of  the  proprietors  or  hi'zri  officers.  Such 
persons,  it  may  be  argued,  will  have  so  greut  interests  at  stake 
on  the  side  of  efficiency  that  small  speculations  will  have  no 
attractions.  Fiuthermore.  the  position  of  the  buyer  will  exer- 
cise an  influence  to  restrain  overanxious  or  dishonest  agents 
from  making  improper  advances.  \Mien.  however,  gi'aft 
develops  in  high  pl:ir-e-  it  is  difficult  to  uncover,  for  subordi- 
nates who  may  know  what  is  going  on  v.ill  feel  that  to  re- 
veal the  truth  is  eqtiivalent  to  asking  for  a  chscharge. 

4.  The  idea  should  be  definitely  estabUshed  in  the  purchas- 
ing department  that  any  gifts  or  attentions  which  have  as 
their  effect  to  cause  an  officer  to  feel  a  sense  of  obligation  to 
suppHers  or  their  friends  are  improper,   whether  the  person 


PURCHASING  AND  STORES  DEPARTMENTS  357 

bestowing  them  had  in  mind  such  an  influence  or  not.  A 
judgment  which  is  hampered  in  the  execution  of  a  trustee- 
ship by  a  sense  of  friendly  obUgation  is  not  in  normal  poise. 
The  first  steps  toward  corrupting  a  buyer  may  be  small  and 
indirect:  mere  signs  of  convivial  disposition  or  of  a  real  per- 
sonal Uking.  The  danger  of  these  steps  lies  in  the  fact  that 
they  lead  a  little  distance  along  a  scale  of  compromises  the 
gradations  of  which  are  so  infinitesimal,  from  step  to  step,  that, 
once  entered  upon,  it  is  difficult  to  find  a  point  at  which  a 
decided  stand  may  be  taken,  without  appearing  to  be  unreason- 
able or  unfriendly. 

5.  A  fundamental  policy  in  deaUng  with  any  derelictions 
which  are  a  part  of  a  cumulative  series  is  early  and  thorough- 
going remedial  action.  Dishonest  acts  undoubtedly  tend  to 
become  part  of  a  cumulative  series,  for  if  undetected  and 
unpunished,  they  appear  to  justify  themselves.  The  doer 
gains  confidence  in  his  skill,  while  he  loses  skill  in  other  means 
of  self-advancement.  He  revolts  less  at  what  becomes  increas- 
ingly familiar.  And  the  gains  serve  to  finance  habits  of  life 
which  are  physically  agreeable  and  involve  a  social  commit- 
ment. 

6.  The  buying  department  should  be  entirely  separate  from 
the  manufacturing  departments.  There  will  thus  be  created 
a  system  of  checks  and  balances.  Officers  in  charge  of  manu- 
facturing and  selling  who  are  made  to  feel  that  the  records  of 
their  departments  are  not  satisfactory,  and  who  know  that  the 
cause  is  poor  material,  are  likely  to  defend  themselves  by  put- 
ting the  blame  where  it  belongs.  For  a  similar  reason  buying 
may  be  separated  from  receiving,  testing,  and  inspecting.  The 
more  independent  officials  there  are  engaged  in  the  different 
phases  of  a  matter,  the  more  pubhcity  there  will  be,  and  the 
less  likelihood  there  will  be  of  collusion. 

7.  For  certain  classes  of  buying  the  rule  may  be  estabhshed 
that  bids  must  be  secured  from  two  or  more  parties,  and  the 
order  placed  with  the  lowest  bidder,  except  where  the  consent  of 


358     ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

designated  superior  officers  is  secured.  The  documents  of 
the  bidding  should  then  be  treated  as  permanent  records;  while 
audits  and  tabulations  of  bids  and  purchases  can  be  made 
from  time  to  time  for  the  information  of  supervising  officers. 

8.  A  powerful  deterrent  to  fraud  is  the  compilation  of  the 
performance  of  materials,  both  in  the  shops  and  in  the  hands 
of  consumers,  to  show  the  record  both  by  batches  and  b}^  firms 
of  origin.  If  high  waste  percentages  and  large  rejections  in 
manufacture  or  frequent  returns  by  customers  characterize 
the  materials  furnished  by  certain  supplying  concerns,  the 
persistent  patronage  of  those  concerns  will  require  explanation. 

9.  It  is  a  help  in  preventing  the  offer  of  secret  commissions 
b}^  selling  agents,  if  there  is  in  existence  a  laW'  Hke  that  of  New 
York  State,  making  proof  of  the  offer  of  a  bribe  operate  to 
discharge  the  indebtedness  due  for  the  merchandise  purchased 
in  connection  with  the  bribe. 

The  Stores  Department 

The  need.  —  In  establishments  where  any  considerable 
variety  of  materials  is  used,  if  a  stores  ^  department  is  not  pro- 
vided there  exists  a  condition  of  individual  self-help.  The 
foremen,  ignorant  of  the  exact  amounts  of  material  required 
for  jobs,  order  excess  quantities,  to  be  on  the  safe  side.  Every 
foreman  or  department  head  who  remembers  previous  delays, 
or  who  looks  ahead  to  protect  his  men  from  lay-off  in  a  dull 
time,  will  try  to  accumulate  a  secret  reserve,  and  run  a  httle 
warehouse  of  his  ow^n  in  some  corner.  Such  a  system  of  pri- 
vate stores  will  involve  much  duphcation,  for  the  sum  of  the 
reserves  of  any  one  material  in  a  series  of  separate  lots  will  be 
more  than  would  be  needed  if  the  lots  were  pooled.  The  in- 
dividual requirements  are  not  permitted  to  average  themselves 
out  in  a  more  uniform  and  predictable  rate  of  aggregate  use. 

^  It  is  convenient  to  use  the  word  "stores"  to  designate  raw  materials 
and  supplies,  while  the  word  "stock"  is  applied  to  parts  and  finished 
articles. 


PURCHASING  AND  STORES  DEPARTMENTS  359 

Unsystematized  supplies  mean  capital  not  earning  interest, 
but  subject  to  physical  deterioration  and  obsolescence.  Mr. 
F.  A.  Parkhurst  recalls  one  case,  ''Where  a  10  ton  lot  of  large 
rivets  was  discovered  while  operations  were  under  way  to 
inventory  and  centralize  all  stock.  These  rivets  were  in  the 
original  kegs  which  had  never  been  opened,  and  were  buried 
under  hundreds  of  empty  kegs  and  boxes  in  an  old  shed  sup- 
posed to  contain  nothing  but  old  packages.  They  had  been 
overlooked  and  had  lain  for  a  year  or  two  while  new  lots  were 
being  bought  periodically.  In  another  case  a  thousand  pounds 
of  copper  was  found  lying  back  of  an  old  shed;  and  still  another 
example  of  the  need  of  a  stores  record  was  the  finding  of  certain 
machine  parts  worth  thousands  of  dollars.  These  parts  were 
more  or  less  standard  and  were  continually  being  used,  but 
had  accumulated  in  odd  lots  and  at  odd  times  and  some  of 
them  particularly  were  found  in  odd  places,  while  apparently 
no  one  knew  they  were  in  existence.  After  they  were  duly 
recorded  and  placed  in  stock,  it  took  nearly  three  years  to  dis- 
pose of  them."  ^  He  adds,  ''A  dollar  saved  either  in  material 
or  labor,  or  both,  is  a  dollar  profit  —  all  profit  —  worth  six 
to  ten  times  a  like  amount  of  new  business." 

In  spite  of  excess  material,  an  unsystematic  condition  will 
involve  much  delay  in  waiting  for  required  things,  for  no  com- 
prehensive agency  exists  to  see  that  the  assortment  is  complete. 
A  need  in  one  department  is  not  met  by  an  unknown  supply 
in  another.  Energetic  department  heads  will  prefer  to  order 
new  material  rather  than  hunt  outside  of  their  department,  or 
will  take  materials  too  good  for  the  job  in  the  absence  of  the 
things  which  economy  would  dictate. 

If  inadequate  handling  of  raw  stores  causes  unbalanced  sup- 
phes  and  the  expenditure  of  labor  without  corresponding 
product,  the  inadequate  control  of  finished  stocks  leads  in  like 
manner  to  the  production  of  goods  not  needed.     The  foreman 

^  F.  A.  Parkhurst.  Applied  Methods  of  Scientific  Management.  N.  Y., 
1912,  pp.  90-91. 


360      ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

who  secretes  a  reserve  of  stores  to  protect  his  men  from  lay- 
off turns  out  finished  products  without  authorization,  and 
throws  the  stock  out  of  balance.  The  absence  of  a  stores  sys- 
tem hides  spoiled  work,  for  the  workman  can  get  a  new  piece 
of  material  to  take  the  place  of  the  spoiled  one  without  creating 
a  record. 

Functions.  —  A  stores  system,  for  a  manufacturing  establish- 
ment, is  such  an  orderly  administration  of  the  values  locked  up 
in  materials  during  the  making  process,  as  the  stock  s\'stem  of 
a  wholesale  or  retail  store  is  for  corresponding  values  during 
the  distributive  process.  The  system  which  comprises  requisi- 
tions, shop  orders,  store  room,  and  a  continuous  invoice  is  for 
materials  an  analog}'  with  the  system  composed  of  the  bill,  the 
receipt,  the  safe,  and  the  cash  account  used  for  handling  money. 
Raw  materials  and  manufactured  stocks  are  more  Hable  to 
waste  and  theft  than  land,  buildings,  and  fixtures,  because 
they  are  movables.  They  are  more  in  danger  than  movable 
equipment  not  only  because  adapted  to  more  uses,  but  because 
the  replacement  of  equipment  is  an  exceptional  act  which  calls 
attention  to  the  cause,  while  materials  are  a  current  asset, 
the  constant  arrival  and  departure  of  which  hides  losses.  If 
materials  are  in  less  danger  of  theft  than  money,  because  less 
concentrated  in  value,  less  universal  in  appeal,  and  less  easily 
exchanged,  they  are.  on  the  other  hand,  more  hable  to  incom- 
plete dehver}*,  to  physical  deterioration,  to  waste  in  the  con- 
verting process,  and  to  obsolesence.  The  analogy*  with  money 
is  closer  than  it  is  with  buildings  and  equipment;  the  system 
employed  for  administration  should  reflect  this  similarity. 

Definite  and  concentrated  location.  —  Administration  is, 
in  a  sense,  a  function  of  space:  distance  wears  down  energ^^ 
and  distribution  taxes  memory-.  The  finer  the  control  aimed 
at,  the  more  definite  and  concentrated  in  their  location  should 
be  the  agencies  controlled.  Concentrated  location  of  materials 
permits  special  equipment,  gives  easy  receipt  and  issue,  lowers 
warehouse  expense,  and  permits  more  eflicient  guarding.     Raw 


PURCHASING  AND  STORES  DEPARTMENTS  361 

materials  will  naturally  be  located  next  to  the  initial  stages  of 
manufacture,  while  finished  stock  will  be  carried  next  to  the 
shipping  department.  The  location  of  sub-stores  is  a  ques- 
tion of  trucking  economics. 

Classification.  —  The  accessibiUty  of  the  units  of  any  col- 
lection depends  chiefly  upon  classification.  The  basis  of  classi- 
fication should  be  the  dominant  logical  relationship  into  which 
the  parts  fall  in  the  establishment.  In  a  manufactory  whose 
product  is  a  composite  of  parts,  the  dominant  logical  relation- 
ship is  usually  the  relation  of  the  parts  in  the  unit  of  finished 
product.  The  classification  should  be  composed  of  distinc- 
tions which  are  sharp  and  definite,  leaving  no  vague  middle 
ground.  A  distinction  must  be  apphcable  to  every  unit  in  the 
class  which  the  distinction  aims  to  subdivide.  The  class  and 
sub-class  designations  must  be  the  only  names  permitted  for 
the  articles.  And,  finally,  the  classification  introduced  into 
stores,  stocks,  accounts,  and  operations  should  be  coordinate; 
that  is,  one  dominant  scheme  of  analysis  should  govern 
throughout. 

Mnemonic  system.  —  The  pioneer  estabhshment  to  sys- 
tematize the  classification  of  a  large  number  of  different  articles 
was  the  public  librarj^  From  that  source  stores  departments 
have  borrowed  the  idea  of  an  arbitrary  classificatory  scheme  or 
mnemonic  system.  It  is  a  great  convenience  to  have  a  sys- 
tem of  conventional  or  arbitrary  signs  which,  because  of  their 
arbitrariness,  can  be  given  an  exact  meaning  entirely  free  from 
any  customary  or  popular  significance,  and  by  which  any  article 
may  be  absolutely  identified  with  the  utmost  brevity,  while 
yet,  through  the  composition  of  the  symbol  itself,  all  desired 
matters  with  reference  to  class  and  sub-class  are  indicated. 
The  ideal  system  should  be  built  up  from  a  small  number  of 
basic  sj^mbols  —  usually  letters  and  figures  —  each  step  in  the 
combination  being  left  open  so  that  new  classes  of  articles  can 
be  pro\dded  with  designations  without  altering  the  system  or 
disturbing  the  designation  of  articles  already  in  use.     Systems 


362     ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

of  classification  based  upon  correct  principles  have  been  intro- 
duced into  industrial  establishments  in  connection  with  scien- 
tific management.  While  mnemonic  s^inbols  may  strike  an 
outsider  as  cryptic,  it  is  vastly  easier  for  those  who  use  them  to 
learn  the  few  elementary  symbols,  and  the  simple  system  of 
combining  them,  than  to  struggle  with  the  perpetual  misunder- 
standings inevitable  with  the  use  of  general  descriptive  phrases 
or  rapidly  shifting  trade  terms. 

A  system  of  requisitions.  —  All  disbursements  of  stores  or 
stock  should  be  upon  the  authority  of  written  requisitions. 
When  the  requisitions  which  have  been  honored  are  classified 
according  to  classes  of  stock,  and  to  this  record  is  coupled  a 
similarly  classified  account  of  the  last  invoice,  and  of  all  pur- 
chases made  since  the  invoice  was  taken,  it  is  possible  to  main- 
tain a  continuous  invoice,  telling  how  much  of  each  article  is 
on  hand,  and  the  value  of  such  remainders.^  The  classifica- 
tion of  requisitions  according  to  job  numbers  will  make  it  cer- 
tain that  all  material  used  has  been  charged,  either  to  its  job, 
or  to  the  proper  class  of  expense. 

Standard  purchasing  schedule.  —  From  the  records  of  requi- 
sitions there  can  be  ascertained  the  rate  of  use  or  outflow  of 
each  kind  of  stores.  As  the  inflow  or  purchasing  is  intermit- 
tent, there  can  be  established,  on  the  basis  of  a  given  size  of 
order,  a  schedule  of  the  required  frequency  of  purchases.  The 
purchasing  schedule  will  be  adjusted  between  the  necessity  of 
maintaining  the  minimum  stock  sufficient  to  meet  require- 
ments, and  the  desirabiUty  of  ordering  in  commercial  quantities. 
The  purchasing  schedule  can  be  made  to  operate  automatically 
on  the  prompting  of  the  stores  department  if  for  each  class  of 
stores  there  is  fixed  the  maximum  and  minimum  amounts  to  be 

^  Stores  accounts  may  be  arranged  on  the  following  formula:  (Amount 
received)  -  (Amount  issued)  =  Amount  on  hand;  or  they  may  be  arranged 
to  show  for  each  class :  (  Raw  materials  +  stock  in  process  +  finished  stock) 
-  (Amount  required  to  meet  promised  deliveries  and  sales  orders)  = 
Balance. 


PURCHASING  AND  STORES  DEPARTMENTS  363 

carried.  When  the  minimum  is  reached  the  stores  department 
notifies  the  purchasing  officer,  who  in  turn  places  an  order  of 
such  size  that  when  the  incoming  amount  is  added  to  the  balance 
on  hand,  the  total  will  not  exceed  the  maximum  limit. 

The  schedule  of  shop  orders.  —  Just  as  a  requisition  sys- 
tem for  stores  permits  the  working  out  of  a  rational  schedule  of 
purchases,  to  the  end  that  the  schedule  of  manufacturing  oper- 
ations in  the  shop  may  be  free  from  disturbance  caused  by  the 
delay  of  materials,  so  a  record  of  shipments  of  finished  products 
from  stock,  together  with  an  estimate  of  quantities  required  to 
fill  orders  on  hand,  when  brought  into  relation  with  a  statement 
of  stock  on  hand  and  the  requisitions  of  parts  for  assembly, 
permits  the  arrangement  of  an  advance  schedule  of  jobs  in  the 
manufacturing  departments,  which  can  be  carried  through  free 
from  the  interruptions  of  rush  orders.  Economy  demands  that 
work  be  put  through  the  shops  in  adequate  lots,  and  that  jobs 
be  allowed  to  follow  one  another  in  orderly  succession,  so  that 
the  various  departments  can  be  kept  full  of  work  under  even 
pressure.  Mr.  F.  A.  Parkhurst  says,  ''Where  but  twenty 
pieces  of  a  kind  are  used  in  a  year,  it  is  obviously  cheaper  to 
make  them  in  lots  of  eight  or  ten  for  stock  at  a  reduction  in 
cost  and  carry  them  through  a  period  of  two  to  six  months  than 
to  rush  even  one  through,  perhaps  having  the  work  done  expen- 
sively by  an  inferior  man,  and  usually  brealdng  up  the  time  of 
some  other  job.  In  many  cases  the  labor  cost  on  parts  can  be 
reduced  80  per  cent  by  the  change  in  methods  even  when  deal- 
ing with  small  quantities  of  eight  or  ten  pieces.  Even  such 
small  lots  give  satisfactory  results  when  methods,  tools,  time 
studies,  and  determination  of  bonus  are  carefully  planned, 
showing  an  immense  saving  in  cost  to  the  firm,  to  say  nothing 
of  the  delay  which  is  avoided.  The  interest  on  the  value  of  the 
stock  tied  up  for  two  or  four  months  is  practically  negligible 
when  considering  the  other  savings  mentioned."  ^ 

Elasticity,  or  allowance  for  change  of  program,  is  required  at 
^  Applied  Principles  of  Scientific  Management,  pp.  94-95. 


36-i     ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

some  point  in  eveiy  chain  of  functions.  If  the  manufacturing 
departments  are,  at  one  time,  being  held  up  for  lack  of  supphes, 
and  at  another  time  are  thown  into  confusion  by  a  rush  order, 
which  side-tracks  the  regular  work,  it  is  ob^^ous  that  these 
departments  are  being  used  as  the  elastic  member  to  take  up 
the  slack  and  tension  between  the  incoming  stores  and  the 
outgoing  stocks.  Tliis  is  a  costh'  error.  The  very  idea  of  a 
stock  or  store  is  a  resen^e  for  contingencies.  The  schedule  of 
manufactiu-ing  operations  should  be  protected  from  the  shock 
of  the  irregularities  of  external  business  relations  by  adec^uate 
buffers  of  stock  at  the  entrance  and  exit  ends.  At  the  raw- 
material  end,  stores  serve  to  even  out  the  irregularities  of 
suppher's  dehveries:  at  the  finished-product  end,  stocks  meet 
the  fluctuations  of  consmners'  demand.  Protected  by  these 
two  resen'es,  the  schedule  of  manufacturing  operations  is  per- 
mitted to  attain  the  efficiency  of  continuous  operation  and  mass 
production. 

BIBLIOGRAPHY 

Dudley,  C.  B.:  The  Making  of  Specifications,  Proc.  of  Am.  Soc.  for  Test- 
ing Materials,  1903.     .\lso  in  Iron  Age,  July  9,  1903,  pp.  29-32. 

Dudley,  C.  B.:  The  Enforcement  of  Specifications,  Proc.  of  Am.  Soc.  for 
Testing  Materials,   1907. 

Pearce,  H.  C:   The  Supply  Department,  X.  Y.,  1911. 

Clapp.  H.  L.:  A  Manufacturer's  Purchasiug  System,  System,  Sept.  1904, 
pp.   227-230. 

Parkhurst,  F.  A.:  AppUed  Methods  of  Scientific  Management.  X.  Y.,  1912. 
Ch.  V,  Importance  of  a  Modem  System  of  Stores. 

Kimball,  D.  S.:  Principles  of  Industrial  Organization,  X".  Y..  1913.  Ch. 
XII,  The  Purchasing,  Storing,  and  Inspection  of  Materials. 

Jacobs,  H.  W.:  Betterment  Briefs,  X.  Y.,  1909.  Ch.  on  The  Ptclation 
Between  the  Mechanical  and  Stores  Departments,  pp.  171-1S3. 

Ennis,  Wm.  D.:  Works  Management,  X.  Y.,  1911.    Ch.  V,  Material. 

Webner,  F.  E.:   Facton.-  Costs,  X.  Y.,  1911,  Part  II,  Clis.  V,  VI,  and  VII. 

TwN-ford,  H.  B.:  Purchasing:  Its  Economic  Aspects  and  Proper  Methods, 
'  X.  Y..  1915. 

Riiidsfoos.  C.  S.:   Purchasing.  X.  Y..  1915. 


CHAPTER  XVn 

SELLING 

We  speak  of  a  merchant  as  a  middleman.     Certainly,  if  it 
is  a  man's  business  to  be  a  middleman,  he  should  know  the 
condition  of  the  men  on  either  side  of  him,  between  whom  he  is 
attempting  to  serve  as  a  connecting  link.     A  sales  depart- 
ment is  a  middle  department  standing  between  the  producing 
shops    on    the    one    side,    and    trade    buyers    and    consumers 
on  the  other.     The  basic  rule  of  efficiency  in  selling  is  to  know 
thoroughly  the  properties  of  goods  and  the  needs  of  people. 
The  reason  why  this  rule  is  not  universally  accepted  is  that 
it  is  possible  to  make  a  brief  record  which  appears  Hke  suc- 
cess by  cutting  prices,  or  by  applying  the  arts  of  salesman- 
ship and  advertising  to  goods  without    distinctive   merit   of 
design  or  the  attraction  of  low  price.     Misfit  sales  do  not  main- 
tain themselves,  however,  for  each  of  such  sales  installs  in  the 
possession  of  the  buyer  an  article  which  begins  at  once  to  edu- 
cate him  as  to  the  error  he  made  in  acquiring  it,  and  which  re- 
emphasizes  the  point   steadily  and   concretely  as  long  as  it 
exists.     IntelHgently  directed  sales  campaigns  aim,  therefore, 
at  selhng  service  or  satisfaction,  by  which  alone  permanent 
trade  connections  can  be  formed.     A  single  sale  is  a  touch-and- 
go  economic  relation;  and  is  exceedingly  hable  to  abuse.     The 
bane  of  the  selling  world  is  that  there  are  so  many  persons 
m  it  whose  interest,  and  therefore  whose  analysis,  reaches  only 
a  httle  way  into  the  future.     It  means  nothing  to  such  oppor- 
tunists to  say  that  the  merchant  must  make  fundamental 
studies  of  the  world  of  wants  and  of  the  world  of  goods,  and 

365 


366     ADMIXISTRATIOX  OF  INDUSTRIAL  ENTERPRISES 

must  govern  himself  by  principles  which  work  out  in  the  long 
nm,  if  he  would  be  a  master  of  his  art,  and  would  establish 
any  great  and  lasting  enterprise  as  an  intermediary  between  the 
two. 

The  functions.  —  The  functions  of  a  selling  department  may 
be  specified  somewhat  more  in  detail  as  follows:  \Yith  refer- 
ence to  the  contract  of  sale,  it  will  be  necessary  to  determine 
what  warranties  shall  be  given,  when  title  is  to  pass,  and  what 
tolerance  as  to  quantity,  quaUty,  or  time  of  dehvery  is  to  be 
specified.  An  office  plan  will  be  needed  for  handling  the 
various  docmnents  connected  with  sales.  There  ^\Tll  be  the 
question  of  fixing  standard  prices,  bulk  prices,  and  differential 
prices;  and  the  defijiing  of  the  tenns  of  deUver>-  and  of  pajTaent. 
The  selling  department  should  have  much  to  say  about  the 
merchandise  which  the  shops  make,  especially  as  to  finish  and 
the  style  of  packaging.  It  will  control  such  active  agencies  of 
sale  as  travelling  salesmen,  branch  agencies,  retail  stores,  and 
the  advertising  campaign.  In  its  relation  to  dealers  it  will  form 
a  pohcy  upon  such  questions  as  who  shall  be  ehgible  to  piu"- 
chase  on  given  terms,  whether  exclusive  territory-  shall  be 
granted,  whether  efforts  shaU  be  made  to  control  the  price  of 
resale,  what  attitude  is  to  be  taken  toward  cancellation  of 
orders  and  the  imjustifiable  return  of  goods,  and  what  education 
and  stimulus  shall  be  pro^^ided  for  dealers. 

Administrative  relationships.  —  ^Manufacturing  and  selling 
are  two  entirely  different  busiaesses.  The  sales  manager  should 
be  coorcfinate  with  the  works  manager,  and  imder  the  super- 
vision of  the  general  manager.  Close  contact  between  the  sell- 
ing and  making  ends  of  a  business  should  be  maintained,  iu 
order  that  defects  in  the  product,  revealed  by  customer's  cor- 
respondence, or  reported  by  dealers  to  the  salesmen,  may  be 
transmitted  to  those  who  are  responsible  for  quahty  and  design. 
The  selling  department  should  be  informed  of  the  quahties  of 
raw  material  used,  the  processes  employed,  and  any  featm^es  of 
design  which  are  considered  uniciue,  to  the  end  that  the  sales- 


SELLING  367 

men  may  be  trained  to  detect  the  exact  conditions  under  which 
the  company's  product  will  give  satisfaction,  and  that  the 
advertising  can  be  written  with  freshness  and  convincing 
point. 

Contract  of  sale.^  —  An  explicit  memorandum  of  sale  is 
important  to  the  seller  as  a  means  of  reducing  cancellations, 
disputes  at  settlement,  and  bad  debts.  To  the  buyer  it  is 
important  when  claims  are  to  be  made.  If  merchandise  re- 
mains in  the  possession  of  the  seller  after  title  has  passed, 
a  written  memorandum  is  useful  in  proving  title  as  against 
creditors  or  subsequent  bona  fide  purchasers. 

Some  of  the  problems  which  arise  in  drawing  up  standard 
sales  contracts  may  be  suggested  by  reproducing  clauses  from 
some  uniform  sales  contracts,  which  have  been  employed  with 
success  in  certain  lines  of  trade. 

Contingencies:  ''This  contract  subject  to  conditions  over 
which  the  seller  has  no  control;  such  as  strikes,  lockouts,  boy- 
cotts, fire  and  flood,  and  restraining  acts  of  the  State  in  con- 
nection with  pubhc  health  or  war." 

Delayed  shipment:  ''The  seller,  under  the  terms  of  this 
contract,  shall  have  no  less  than  fourteen  (14)  days  from  receipt 
of  shipping  instructions,  to  satisfy  same  and  make  shipments. 
Failure  on  the  part  of  the  seller  to  complete  shipments  within 
prmiary  contract  time,  or  within  fourteen  (14)  days  from 
receipt  of  shipping  instructions  (unless  prevented  by  conditions 
beyond  his  control)  shall  entitle  the  buyer  (a)  to  cancel  such 
specified  portion,  and  collect  from  the  seller  the  difference 
in  value  of  such  portion  between  date  of  purchase  and  date 
of  cancellation,  or  (6)  to  continue  the  life  of  said  contract  at 
credit  of  five  (5)  cents  per  barrel  for  flour,  and  twenty-five 
(25)  cents  per  ton  for  feed  for  each  thirty  (30)  days'  period  or 
fractional  part  thereof,  beyond  the  limit  of  primary  contract 
shipment,  or  said  fourteen  (14)  day  period;    it  being  agreed 

^  Compare  Chapter  XVII,  Purchasing  and  Stores  Departments,  pp. 
345-346. 


36S     ADMIXISTRATIOX  OF  IXDUSTPJAL   EXTERPRISES 

that  unless  notice  to  the  contrary  is  served  on  seller,  clause  (5) 

of  tliis  paragraph  will  govern."    ,..„      -  -^  ,•       7^7      ,■ 

^      '^    ^  Millers  xatwtial  federation. 

Delayed  shipment  instructions:  "Unless  otherwise  specified, 
time  of  shipment  is  to  be  within  sixty  (60)  days  from  date 
of  contract.  Goods  not  ordered  out  witliin  sixty  (60)  days  from 
date  of  contract,  or  within  contract  shipment  period,  are,  with- 
out notice  to  buyer,  subject  to  the  following  carrying  charges: 

''Flour:  Five  (5)  cents  per  baiTel  for  every  thirty  (30)  da^'s, 
or  fractional  part  thereof. 

"Feed:  Twenty-five  i25)  cents  per  ton  for  every  tliirty  (30) 
days,  or  fractional  part  thereof. 

' '  Such  carrying  charges  become  due  and  payable  at  the  begin- 
ning of  each  thirty  (30)  days'  period  after  the  tennination  of  the 
time  of  contract  shipment,  the  buyer  hereby  agreeing  to  pay 
the  same.  The  life  of  this  contract,  however,  shall  in  no  case 
be  thereby  extended  for  more  than  sixty  (60)  days. 

"Failure  on  part  of  the  buyer  to  order  out  piu'chase  before 
expiration  of  extended  contract  period  gives  the  seller  the 
right  to  cancel  the  contract,  or  unshipped  portion  of  the  same, 
and  to  collect  from  buyer,  on  unshipped  portion,  the  differ- 
ence between  market  value  of  the  same  at  date  of  sale  and 
date  of  termination,  with  all  accrued  carrying  and  all  seUing 
charges."  Millers'  Xational  Federation. 

Allowable  variations:  "If  the  production  of  the  seller 
shall  be  cintailed  during  the  time  above  named,  by  strikes, 
lockouts,  or  unavoidable  casualties,  the  dehveries  shall  be 
made  and  accepted  in  proportion  to  the  production." 

Xatl  Asso.  of  Cotton  Mfrs.,  and 
Am.  Cotton  Mfrs.  Asso} 

"Shipments  wliich  vary  within  5  per  cent  of  the  amount  speci- 
fied in  this  contract  shall  be  accepted  in  discharge  of  the  same, 
and  be  paid  for  pro  rata." 

^  This  contract  also  contains  detailed  proATsions  as  to  allowable  varia- 
tions of  width,  warp  count,  filling  count,  and  weight. 


SELLING  369 

Separable  instalments:  ''When  contract  calls  for  delivery 
in  instalments,  the  buyer  cannot  cancel  the  contract  for  any 
default  in  any  one  or  more  instalments  not  amounting  to  a  sub- 
stantial breach  of  contract,  but  may  cancel  or  replace  at  seller's 
expense  any  delivery  that  is  delayed." 

Nat'l  Asso.  of  Cotton  Mfrs.,  and 
Am.  Cotton  Mfrs.  Asso. 

Passage  of  the  title:  ''Unless  otherwise  specified,  the  title 
to  goods  sold  passes  to  the  buyer  (subject  to  the  right  of  stop- 
page 171  transitu) : 

(a)  "Upon  dehvery  F.O.B.  to  carrier,  consigned  to  buyer, 
and  thereafter  goods  are  at  buyer's  risk. 

(5)  "Upon  arrival  of  goods  at  destination  and  delivery  to  buyer 
of  bill  of  lading  or  of  goods,  in  the  case  of  goods  to  be 
delivered  F.O.B.  elsewhere  than  to  carrier. 

(c)  "Upon  dehvery  of  endorsed  bill  of  lading  or  of  goods,  in 

case  of  goods  consigned  to  seller's  order. 

(d)  "Upon  the  separation  of  the  goods  and  holding  subject  to 

buyer's  order  (the  invoice  to  follow  b}^  due  course  of 
mail),  in  the  case  of  goods  to  be  held  or  if  buyer  fails 
to  give  shipping  instructions." 

Nafl  Asso.  of  Cotton  Mfrs. ^  and 
Am.  Cotton  Mfrs.  Asso. 

Price  and  quantity.  —  The  adjustment  of  the  price  to  the 
quantity  involved  in  the  order  raises  the  important  question 
whether  the  principle  of  giving  quantity  prices  is  to  be  followed, 
that  is  to  say,  whether  or  not  lower  prices  will  be  given  for 
large  orders.  Large  dealers  favor  quantity  prices.  Small  ones 
favor  prices  fixed  on  the  basis  of  the  class  or  status  of  the  dealer, 
and  so  made  to  apply  equally  to  all  in  the  class  —  as  to  all 
jobbers  or  all  retailers  —  regardless  of  the  size  of  the  order. 

A  minor  question  has  to  do  with  package  differentials.  The 
disregard  of  this  adjustment  sometimes  gives  to  market  quo- 


370     ADMINISTRATIOX  OF  INDUSTRIAL  ENTERPRISES 

tations  a  degree  of  indefiniteness.     The  differential  scale  of  the 
JMillers'  National  Federation  is  as  follows: 

Bulk 20  cents  per  bbi.  less  than  basis 

Paper 10 

140  1b.  jute 10     " 


u       a         II  (I  ii 


Cotton  sacks,  96  lbs.,  48  lbs.,  and  2Jf  lbs..  Basis 

yV  bbl.  cotton 15  cents  per  bbl.  over  basis 

Wood 15     ''         "     "       "         " 


J  bbl.  wood 45 


(I         II     ii 


Price  and  classified  lists.  —  To  whom  shall  sales  be  made? 
To  dealers  only?  There  are  many  classes  of  dealers.  Goods 
flow  up  hill  in  price,  mo\dng  from  one  dealer  to  another,  in 
response  to  the  attraction  of  a  prospective  trading  profit. 
Broadly  speaking,  there  are  three  price  levels:  manufacturer's, 
wholesaler's,  and  retailer's.  If  sales  are  made  without  estab- 
lishing differentials  to  safeguard  customary  profits,  the  eco- 
nomic impulse  is  destroyed  for  all  the  dealers  who  are  primary 
to  the  one  suppHed.  Such  goods  will  cease  to  move  normally, 
unless  they  are  so  strongly  intrenched  in  pubhc  favor  that  they 
must  be  handled  by  dealers  as  an  accommodation,  to  complete 
trade  assortments. 

To  apply  differential  prices  accurately  is  a  difficult  matter, 
and  calls  for  the  careful  compilation  of  classified  lists  of  dealers, 
so  that  each  dealer  will  be  quoted  only  those  terms  which  are 
appropriate  for  his  class.  Let  us  say  that  it  is  decided  to  sell  to 
wholesalers  at  given  prices.  What  constitutes  a  wholesaler? 
Is  a  department  store  which  prints  on  its  letter  head  ''Whole- 
sale and  Retail,"  but  develops  no  wholesale  business  outside  of 
that  which  comes  voluntarily  as  local  accommodation,  a  whole- 
sale house?  Is  a  southern  retailer,  who  in  ante-bellum  times 
got  wholesale  terms,  entitled  to  those  terms  now?  If  manu- 
facturers are  to  be  given  wholesale  terms,  is  a  bicycle  repair 
shop  to  be  considered  a  manufacturer,  when  much  larger  sales 


SELLING  371 

are  made  at  retail  to  the  hardware  store  around  the  corner?  If 
hotels  are  to  be  given  wholesale  terms,  is  a  restaurant  a  hotel; 
and  what  shall  be  done  with  the  boarding-house  trade?  Shall 
goods  be  sold  on  the  same  basis  to  dealers  who  handle  them  as 
side  lines  as  to  those  for  whom  they  constitute  a  main  line? 
The  point  of  this  is  that  side  lines  are  often  handled  at  less 
profit  than  is  required  of  the  main  lines,  so  that  the  use  of  a 
firm's  goods  as  side  hues  may  injure  the  distribution  through  the 
main  channel. 

Guarantee  of  prices.  —  In  businesses  of  a  seasonal  nature  it 
is  a  great  advantage  to  a  manufacturer  if  he  can  induce  his 
customers  to  place  orders  considerably  in  advance  of  the  time 
when  the  goods  will  be  wanted.  To  the  buyer  the  placing  of 
such  advance  orders  means  the  assumption  of  the  risk  that 
prices  will  dechne  after  the  goods  are  bought,  but  before  they 
have  come  into  his  possession.  To  protect  customers  against 
this  contingency,  manufacturers  are  sometimes  asked  to  guar- 
antee prices.  This  means  to  agree  to  accept  the  price  which  is 
current  on  the  deUvery  date.  A  difficulty  inherent  in  all  such 
agreements  is  that  no  ready  means  is  at  hand  for  determining 
what  constitutes  the  current  price.  Does  a  single  low  offer, 
made  perhaps  by  a  rival  from  motives  of  revenge,  establish  a 
current  price?  In  some  cases  the  quotations  of  a  produce 
exchange,  or  of  some  price  board,  can  be  utilized,  as  a  basis  to 
which  an  agreed  converting  profit  is  to  be  added.  The  guaran- 
tee of  prices  by  a  manufacturer  to  a  dealer,  especially  to  a 
jobber  or  to  the  buyer  of  a  large  department  store  or  mail- 
order house,  is  a  violation  of  the  principle  of  the  division  of 
labor,  for  it  sets  one  who  is  primarily  engaged  with  machinery 
and  the  processes  of  manufacture  at  the  task  of  calculating 
the  changes  of  supply  and  demand  for  one  who  is  a  student  of 
prices  and  a  market  expert.  It  would  seem  that  the  more  cor- 
rect solution  of  the  problem  of  seasonal  manufacture  is  to  take 
advance  orders  at  lower  prices,  as  is  often  done  by  discounting 
at  an  attractive  rate  for  prepayment. 


372     ADMIX rSTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

Control  of  the  prices  of  resale.  —  In  recent  years  retail  com- 
petition has  often  taken  the  form  of  selling  nationally  adver- 
tised articles  as  leaders  at  reduced  prices.  Such  use  makes  the 
articles  unprofitable  to  dealers,  and  operates  to  cause  them  to 
be  dropped.  Mamifacturers  have,  therefore,  been  aroused  to 
protect  their  products  by  controlhng  the  prices  at  which  the 
dealers  sell.  State  statutes  and  state  court  decisions  run  in 
contrary  directions  with  reference  to  the  legahty  of  such 
attempts.  The  United  States  Supreme  Coiut  has  declared 
null  and  void  all  efforts  to  encimiber  a  chattel  with  price  restric- 
tions, in  interstate  trade,  after  such  a  chattel  has  passed  into 
the  hands  of  independent  dealers.  A  manufacturer  can,  of 
course,  control  the  prices  charged  by  dealers  who  are  his  bona 
fide  agents,  acting  under  the  law  of  principal  and  agent  in  their 
relations  with  him.  and  not  under  that  of  contract  of  sale. 

Agencies.  —  In  certain  lines  of  staple  product  a  manufac- 
turer can  distribute  through  commission  merchants,  or  through 
controlled  but  separately  incorporated  sales  agencies,  and  in 
so  doing  reduce  his  selhng  fmictions  to  a  minimum.  The 
relations  of  the  parties  under  such  a  s>'stem  will  be  governed 
by  the  terms  of  a  comprehensive  agency  contract  of  several 
years'  duration.  The  adjustments  required  between  the  manu- 
facturer and  liis  cUstributors  will  be  chiefly  of  an  accounting 
and  auditing  nature:  except  that  some  sort  of  a  campaign  of 
pubUcity  may  be  carried  on  to  make  the  estabhshment  known 
to  the  pubUc,  and  to  prevent  the  maker  from  becoming  help- 
less in  the  hands  of  his  distributors.  If  the  marketing  is  done 
through  controlled  agencies,  it  will  be  found  convenient  to 
have  them  separately  incorporated,  not  only  because  special 
charter  powers,  not  possessed  by  the  manufacturing  corpora- 
tion, may  be  needed,  and  because  state  hcense  fees  and  taxes 
are  thereby  lessened,  but  also  because  the  control  of  existing 
cUstributive  businesses  is  more  easily  acquired  if  a  capital  inter- 
est can  be  retained  by  the  former  owners,  while  good-will  is 
best  conserved  by  lea^-ing  the  existing  firm  names  undisturbed. 


SELLING  373 

Travelling  salesmen.  —  The  system  of  selling  through  travel- 
ling salesmen  was  developed  in  this  country  after  the  Civil 
War,  when  the  problem  of  marketing  the  products  of  the  new 
American  factories  which  had  sprung  up  during  the  war,  and 
in  response  to  a  high  tariff,  had  become  acute;  and  when  the 
old  importing  houses  and  commission  agents  could  no  longer 
maintain  their  autocratic  attitude  of  expecting  customers  to 
come  to  them.  The  first  men  chosen  as  travelling  representa- 
tives were  ignorant  of  merchandise  and  of  the  needs  of  dealers 
and  consumers;  they  trusted  to  the  prestige  of  expansive  man- 
ners and  loud  dress,  and  to  the  ingratiating  influence  of  cigars 
and  drinks.  They  were  found  to  be  expensive  and  inefficient. 
Their  places  were  gradually  taken  by  quiet  men  who  aimed  to 
deserve  the  confidence  of  buyers  by  knowledge,  good  judgment, 
and  character.  The  deathblow  was  given  to  the  earlier  type 
of  salesman  by  the  ridicule  contained  in  Lorimer's  ''Letters 
from  a  Self-Made  Merchant  to  His  Son."  ^ 

The  inefficiencies  of  salesmen  (apart  from  native  talent) 
spring  from  the  attempt  to  sell  things  as  different  from  what 
they  are,  owing  to  ignorance  of  conmiodities;  second,  from  the 
attempt  to  sell  people  things  they  do  not  need,  either  because 
of  ignorance  of  the  customer's  circumstances,  or  from  the 
deliberate  purpose  of  overloading  the  customer;  and,  third, 
from  lack  of  conviction  and  courage,  caused  by  an  imaginary 
conception  that  rival  goods  are  better  than  the  ones  offered  — 
an  impression  which  is  often  founded  on  ignorance  of  other 
goods.  Mr.  James  Hartness,  one  of  the  foremost  designers 
of  the  American  machine-tool  trade,  has  pointed  out  that  dis- 
satisfaction with  a  well-seasoned  design  is,  in  large  part,  due 
to  an  imaginary  conception  of  the  superiority  of  rival  designs; 
a  superiority  which  disappears  on  intimate  acquaintance.^ 

^  Geo.  H.  Lorimer,  Letters  from  a  Self-made  Merchant  to  His  Son, 
Boston,  1902. 

2  Human  Factor  in  Works  Management,  N.  Y.,  1912,  pp.  138>  144, 
149. 


374     ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

Administration.  —  The  old  method  of  recruiting  a  sales 
force  was  to  assume  that  salesmen  were  bom  and  not  made, 
and  to  trj'  by  perpetual  hiring  and  firing  to  select  the  geniuses. 
The  new  method  is  to  use  much  greater  care  in  selection,  but 
supplement  natural  talent  b}*  s^'stematic  training.  The  old 
method  of  supersTsion  was  to  di\'ide  the  territory,  pay  satis- 
factory- salaries,  and  leave  the  men  to  work  out  their  own  sal- 
vation. The  new  s^-stem  is  to  control  the  order  in  which  the 
men  travel  their  routes,  fix  the  prices  and  terms  to  be  offered, 
pave  the  way  for  calls  upon  customers  by  hterature  sent  in 
advance,  keep  in  almost  daily  stimulating  touch  with  the  men, 
and  make  them  feel  that  their  records  are  constantly  watched, 
and  that  they  will  be  advanced  in  proportion  to  their  abihty  to 
earn  profits. 

Assignment  of  territory.  —  In  the  assignment  of  territory  to 
salesmen  the  principal  considerations  are:  (1)  to  cover  the 
entire  area  within  which  there  is  relative  competitive  advan- 
tage; (2)  to  organize  the  territory'  of  each  salesman  as  com- 
pactly as  possible,  to  save  time  and  travelling  expense;  (3) 
to  make  the  routes  of  the  different  men  as  nearly  equal  in 
trade  possibihties  as  may  be,  so  that  a  comparison  of  individual 
sales  will  sers  e  as  an  index  of  efficiency;  (4)  to  make  each 
route  of  such  sLze  that  a  salesman  must  thoroughly  canvass  the 
trade  to  make  satisfactory  total  sales,  that  the  salesman  can 
get  aroimd  to  each  point  on  his  circuit  as  frequently  as  is 
deemed  necessary,  and  that  the  total  sales  shall  be  sufficient 
to  keep  the  salesman's  salary  and  expenses  within  a  certain  per- 
centage of  the  net  sales  or  gross  profits.  ^lanufacturer's 
salesmen  maj'  be  contented  with  two  trips  a  year,  with  extras 
between  as  conditions  require;  the  representatives  of  whole- 
salers visit  their  towns  at  least  once  each  month,  while,  in  the 
parts  of  the  country'  where  the  competition  is  active,  an 
interval  of  more  than  two  weeks  between  calls  is  considered 
unsafe.  (5)  The  utmost  advantage  should  be  taken  of  the  per- 
sonal characteristics  and  experience  of  salesmen,  and  of  the 


SELLING  375 

acquaintance  they  may  have  with  the  dealers  of  a  given 
territor>\ 

The  area  covered  bj^a  manufacturer's  salesman  may  vary  from 
a  great  city  or  a  single  state  to  five  or  six  states.  A  wholesaler's 
representative  may  have  a  region  containing  from  20  to  40  good- 
sized  towns  which  are  to  be  visited  on  each  round,  together 
with  a  number  of  smaller  places  to  be  visited  occasionally. 

Revision  of  territory.  —  If  a  body  of  salesmen  be  left  to 
themselves  for  some  time  in  travelling  their  territory,  it  will  be 
found  that  many  locahties  cease  to  be  visited,  and  that  many 
merchants  in  places  visited  are  no  longer  called  upon.  There 
are  various  reasons  to  account  for  this.  A  salesman  will 
usually  develop  only  such  trade  in  a  territory  as  he  thinks  he 
can  take  care  of.  He  mil  prefer  to  skim  the  cream  of  a  large 
region,  by  making  the  more  convenient  towns,  and  by  calhng 
upon  the  larger  or  more  friendly  dealers,  than  to  work  a  smaller 
territory  more  intensively. 

Mr.  Masters  has  explained  the  process  of  deterioration  which 
goes  on  in  salesmen's  work  as  follows:  ^'The  older  houses  who 
retain  their  men  for  long  periods  have  at  times  a  serious  condi- 
tion of  affairs  confronting  them.  They  find  their  territory  nar- 
rowing, and  when  they  lose  a  customer  in  any  given  field  or  city 
it  is  difficult  for  their  salesmen  to  make  satisfactory  arrange- 
ments with  another  firm.  The  old  salesman  has  grown  into  a 
groove,  contenting  himself  with  visiting  his  regular  trade  and 
neglecting  to  keep  in  touch  with  other  concerns,  until  he  is  at 
a  disadvantage  when  any  change  occurs  in  his  territory.  Then, 
it  is  impossible  for  a  salesman  to  please  every  one.  He  meets 
with  discourtesy  from  an  occasional  boorish  buyer,  or  shows 
some  disagreeable  traits  himself  and  a  coolness  results  which 
leads  the  salesman  to  pass  by  that  particular  house.  The 
stress  of  competition  between  his  customer  and  the  other  firms 
of  the  towm  may  oblige  him  to  confine  his  attention  to  one 
firm  until  by  long  association  he  becomes  locally  identified  with 
his  customer  and  he  is  persona  non  grata  with  the  other  dealers. 


376     ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

A  desire  to  cover  his  route  quickly,  or  a  settled  routine  which 
has  by  time  been  converted  into  a  habit,  leads  him  into  a 
beaten  path  from  which  he  never  strays,  and  the  increased 
opportunities  for  an  extended  trade  mean  nothing  to  him."  ^ 

To  correct  such  a  condition,  a  series  of  ''rider  routes  "  may 
be  superimposed  upon  the  older  routes,  including  only  the 
towns  and  the  merchants  not  visited  by  the  older  salesman;  or 
the  routes  may  be  somewhat  shifted  to  create  new  territory 
between  them.  The  rearrangement  of  salesman's  territory, 
after  things  have  drifted  for  many  years,  is  both  disagreeable 
and  dangerous.  It  is  much  better  to  avoid  the  necessity  for 
it  by  establishing  a  competent  sj^stem  of  control,  and  keeping 
conditions  up  to  the  mark  from  the  first. 

Routing  control.  —  A  sales  manager  should  organize  a  sys- 
tem by  means  of  which  he  knows  approximate^  where  his 
salesmen  are  at  all  times.  To  do  this  the  localities  at  which 
visits  are  to  be  made  by  the  salesmen  must  be  determined  by 
the  house,  the  order  in  which  these  localities  are  to  be  visited 
must  be  fixed,  and  the  date  of  the  visits  must  be  set  within  a  day 
or  two.  A  salesman,  w^hen  on  the  road,  must  then  keep  his 
chief  informed  of  his  location,  by  a  daily  report,  and  must 
state  where  he  is  to  be  for  the  next  few  days. 

One  of  the  devices  for  handling  a  routing  system  in  the  main 
office  is  called  the  map  and  tack  method.  It  originated  in 
military  administration.  Colonel  Vachee  ^  thus  describes 
Napoleon's  methods:  '*0n  campaign,  on  the  eve  of  battle, 
night  was  specially  devoted  to  his  intellectual  work.  Having 
generally  retired  to  rest  about  eight  o'clock,  after  dinner,  he 
rose  at  the  moment  the  reports  on  the  reconnaissances  reached 
imperial  headquarters,  that  is,  about  one  or  two  in  the  morning. 
Becler  d'Albe  had  spread  out  for  him  on  a  large  table,  in  the 
room  which  served  as  a  stud}",  the  best  map  of  the  seat  of  the 
war.     On  this  map,  set  very  accurately  to  the  compass,  and 

1  The  Iron  Age,  June  4,  1903. 

2  Napoleon  at  Work,  London,  1914,  p.  10. 


SELLING  ?>11 

surrounded  by  twenty  or  thirty  candles,  were  marked  with  pins 
with  coloured  heads  the  various  positions  of  the  army  corps 
and,  as  fast  as  they  were  known,  those  of  the  enemy.  It  was 
on  this  that  he  worked,  moving  his  compasses,  open  to  the 
scale  of  six  to  seven  leagues  —  a  march  —  here  and  there. 
Before  the  night  was  over  he  had  made  up  his  mind,  and  dic- 
tated and  despatched  his  orders,  which  the  troops  carried  out 
at  break  of  day." 

As  the  modern  captain  of  sales  uses  this  device  in  the  con- 
trol of  the  marches  of  his  salesmen,  the  map  and  tack  outfit 
consists  of  a  series  of  maps,  mounted  upon  the  soft  wood  bot- 
toms of  shallow  drawers,  and  assembled  in  a  case.  The  tacks 
are  covered  with  different  colored  cloths,  each  salesman  having 
a  color.  The  territory  assigned  to  a  salesman  is  then  marked 
out  on  the  map,  and  the  towns  to  be  visited  are  designated 
by  colored  tacks,  and  connected  with  a  thread  of  the  same  color, 
to  show  in  what  order  they  are  reached.  The  location  of  the 
salesman  at  any  time  is  represented  by  a  large,  flat-topped, 
paper-covered  tack  upon  which  the  salesman's  name  is  written. 
As  he  moves  from  place  to  place,  the  name  tack  is  moved  to 
the  corresponding  positions.  Tacks  of  various  shapes  and 
colors,  or  bearing  upon  their  heads  various  words  or  symbols, 
may  be  used  to  designate  towns  in  which  new  customers  are  to 
be  called  upon,  or  in  which  collections  are  to  be  made,  or  in 
which  grievances  are  to  be  adjusted.  Whenever  any  of  these 
matters  arise  a  tack  of  the  proper  sort  is  placed  at  the  appro- 
priate town,  and  left  there  until  the  approach  of  the  name  tack 
on  the  route  gives  warning  that  it  is  time  to  send  the  salesman 
special  instructions.  The  map  and  tack  system  brings  out 
very  clearly  such  matters  as  the  towns  visited  and  those  not 
visited,  the  location  of  the  salesman  at  any  time,  the  next 
maihng  point,  and  the  towns  in  which  the  salesman  is  to  be 
asked  to  do  some  special  duty.  It  reveals  in  graphic  form 
whether  the  routes  are  compact  or  not,  and  whether  or  not 
the  towns  are  taken  in  the  most  convenient  order. 


378     ADMIXISTRATIOX  OF  IXDUSTRIAL  ENTERPRISES 

Records  and  reports.  —  As  a  supplement  to  the  equipment 
above  described,  the  sales  manager  should  maintain  in  his 
office  a  system  of  card  catalogs  gi\ing  information  about  cities 
and  customers.  The  arrangement  of  cards  should  be  by  states, 
by  cities  alphabetically  arranged  under  states,  and  by  firms 
alphabetically  arranged  under  cities.  Separate  town  and 
customer  cards  should  be  proM^ded.  The  town  cards  should 
show  name,  state,  county,  population,  railways,  freight  rates, 
shipping  instructions,  express  companies,  banks,  collection 
attorney,  remarks  as  to  any  special  characteristics  of  the  place 
as  a  market,  and  the  name  of  the  salesman  covering  the  local- 
ity. Customers'  cards  should  include,  among  other  things, 
the  customer's  fiim  name  and  address,  the  various  lines  of 
goods  carried,  the  lines  bought  of  the  house,  credit  rating, 
credit  limit,  advertising  matter  sent,  the  salesman  concerned, 
and  a  record  of  prnxhases  by  months  for  several  years  back. 

If  the  office  records  are  to  possess  value  they  must  be  kept 
re^'ised  stricth'  to  date.  Volmninous  reporting  is  a  provoking 
tax  upon  the  salesman's  tmie  and  energy-.  The  facts  asked 
for  should  be  cut  down  to  essentials,  so  that  a  strict  poHcy  of 
insisting  upon  them  will  be  accepted  as  reasonable.  It  is 
chiefly  through  the  reports  of  his  travelling  representatives  that 
the  sales  manager  can  keep  pace  with  the  development  of  liis 
territoiy,  can  learn  what  hnes  are  unprofitable  and  why,  and 
can  ascertain  what  territoiy  belongs  normally  to  another  sup- 
pMng  centre.  From  such  reports,  also,  the  credit  man  can  get 
early  warning  of  conditions  which  will  make  desu-able  the 
curtaihng  of  a  credit  or  the  closing  of  an  account.  Prepared 
report  blanks  are  superior  to  letters;  they  save  ^Titing,  and 
A^t  prevent  the  omission  of  an^-thing  essential,  by  providmg  a 
separate  space  for  each  class  of  facts.  If  a  sales  manager  desires 
liis  salesmen  to  enter  heartily  into  the  performance  of  other 
duties  than  straight  selhng,  he  must  devise  a  system  of  remimer- 
ation  which  makes  excellence  in  those  other  duties  count  in 
determining  the  wages  and  in  the  final  rating  of  the  individual 


1 


SELLING  379 

as  to  efficiency.  In  other  words,  the  rating  must  not  be  based 
on  net  sales  alone,  but  must  be  a  composite  or  ''point  "  system, 
in  which  each  kind  of  work  required  is  given  its  relative  weight. 

If  it  is  important  that  the  salesman  should  keep  the  house 
informed,  it  is  equally  essential  that  the  sales  manager  should 
keep  his  salesmen  posted.  There  are  two  matters  which 
always  require  the  latest  possible  data,  namely,  prices  and 
credit  conditions.  Under  the  routing  system,  the  home  office 
always  knows  where  to  address  mail  or  telegrams  to  the  sales- 
men. Credit  information  concerning  every  customer  in  each 
place  to  be  visited  before  the  salesman  again  receives  mail 
should  be  compiled  upon  town  credit  cards  and  mailed  to  him 
as  late  as  can  safely  be  done  to  reach  destination  in  time.  On 
these  cards  each  customer's  account  should  be  entered  up  to 
date,  the  remaining  credit  allowance  being  shown,  and  instruc- 
tions with  reference  to  selling  or  collecting  being  embodied  in 
the  sheet,  in  secret  sjanbols,  on  the  authority  of  the  credit  man. 

Cooperation  with  the  salesman.  —  The  distant  sales  repre- 
sentative of  a  house  meets  all  the  criticisms  and  uncompli- 
mentary comparisons  of  his  house,  which  the  defects  in  its 
methods  produce,  or  which  competition  engenders;  and  he 
meets  them  alone.  He  needs  support  from  those  who  are 
stronger  than  he,  or  who  are  not  so  severely  tried,  or  who  have 
the  advantage  of  working  in  close  association  with  each  other. 

The  salesman's  remuneration  should  be  adjusted  to  perform- 
ance, either  through  the  use  of  a  commission  added  to  salary,  or 
by  a  system  of  frequent  promotions  which  gives  prompt  recog- 
nition to  increased  earning  power. 

The  salesmen  should  be  furnished  with  frequent,  clear,  and 
emphatic  proofs  of  the  fairness  of  the  prices  asked,  of  the 
soundness  of  the  merchandise  offered,  and  of  the  integrity  of 
the  business  policy  of  the  firm.  The  aim  of  these  things  is  to 
produce  an  unshakable  conviction  in  the  salesman's  mind  that 
he  does  not  fear  competition,  and  that  he  is  conferring  a  benefit 
upon  his  customers  quite  as  much  as  receiving  one  at  their 


380     ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

hands.  Through  a  constant,  tactful,  friendly,  and  invigorating 
correspondence,  there  should  be  made  vivid  in  the  traveller's 
mind  the  spiritual  presence  of  those  with  whom  he  is  associated 
in  interest. 

By  prizes,  bonuses,  honorable  mention,  and  otherwise, 
emulation  may  be  given  interesting  and  varied  aspects,  and 
can  be  broken  up  into  ''heats  "  which  relieve  tedium,  and  be 
made  to  end  in  attractive  climaxes  which  socialize  the  effort 
and  add  to  the  other  rewards  that  one  which  is  dearest  to  the 
sensitive  nature,  namely  recognition.  Care  should  be  taken,  in 
making  all  personal  comparisons,  not  to  create  the  impression 
that  the  force  of  salesmen  is  definitely  and  irrevocably  sifted 
into  the  classes  of  good,  bad,  and  indifferent.  Definitive  classi- 
fication is  the  death  of  emulation.  It  discourages  those  at  the 
bottom;  it  makes  those  at  the  top  too  well  satisfied  with  them- 
selves. 

One  of  the  greatest  salesmen^  in  America  has  said,  ''The 
best  way  I  know  of  keeping  a  selhng  organization  up  to  the 
highest  mark  of  efficiency  is  to  get  all  of  the  men  together  once 
a  year  in  a  confidential  convention,  for  a  heart-to-heart  talk." 
By  means  of  a  convention,  the  salesmen  become  acquainted 
with  the  officers  of  the  company,  and  with  each  other;  they 
have  an  opportunity  to  study  the  merchandise  carried  by  the 
house,  article  by  article;  they  exchange  experiences  with  each 
other  which  reveal  the  real  nature  of  difficulties  misconceived, 
and  the  real  superiority  of  the  best  methods;  and  they  develop 
an  esprit  de  corps  which  warms  their  w^ork  with  a  touch  of 
sentiment. 

Miscellaneous  methods  of  distribution.  —  It  will  be  the 
function  of  the  selling  department  to  devise  and  administer 
any  unusual  or  temporary  selling  methods  which  may  be 
required,  such  as  a  mail-order  system  for  mtroducing  goods 
until  sufficient  trade  can  be  generated  to  attract  the  attention 
of  dealers;  a  chain  store  method,  if  merchandise  is  of  a  character 
1  Mr.  Charles  Miller,  Pres.  of  the  Galena  Signal  Oil  Company. 


SELLING  381 

to  stand  by  itself  as  a  separate  stock;  a  bid  and  contract  sys- 
tem for  dealing  with  equipment  orders,  or  for  supplying  the 
Federal,  State,  or  local  governments;  and  an  auction  or  lump 
sum  method  for  clearing  out  seconds,  mill  ends,  or  merchandise 
of  obsolete  pattern. 

BIBLIOGRAPHY 

Hoyt,  Chas.  W.:  Scientific  Sales  Management;  A  Practical  Application 
of  the  Principles  of  Scientific  Management  to  Selling,  New  Haven, 
Conn.,  1912. 

Rogers,  Edw.  S.:  Good-Will,  Trade  Marks,  and  Unfair  Trading,  N.  Y., 
1914. 

Fernley,  Thos.  A.:  Price  Maintenance,  Phila.,  1912. 

Stevens,  Wm.  S. :  Unfair  Competition,  N.  Y.,  1914.  Reprinted  from  The 
Pol.  Sc.  Quart.,  Vol.  30,  No.  2,  June  1914,  and  No.  3,  Sept.  1914. 

Knoop,  Douglas:  American  Business  Enterprise,  Manchester,  Eng.,  1907. 

Masters,  Samuel:  The  Traveling  Salesman:  His  Methods  and  Control, 
Iron  Age,  1903.     Twenty-six  articles  between  Jan.  15  and  Aug.  27. 

Holman,  W.  C:  A  5000  Brain-Power  Organization,  System,  Aug.-Dec. 
1904.  Describing  the  seUing  system  of  the  National  Cash  Register 
Co.  of  Dayton,  Ohio. 

Clendenin,  Wm.:  System  Against  System,  System,  Feb.  1905,  pp.  132-147. 
Describing  the  selHng  system  of  the  United  Cigar  Stores  Co. 

Lennen,  Phihp  W.:  The  Autocrat  of  Business,  System,  June  and  July 
1906.     Describing  manufacturers'  methods  of  creating  demand. 

Manners,  O.  N.i  The  Retailer's  Selling  Partner,  System,  June,  July,  and 
Aug.  1907.  Explaining  the  assistance  given  to  dealers  by  manufac- 
turers. 

Brown,  F.  H.:  Exclusive  Territory  and  Protection  Therein,  Iron  Age, 
Oct.  4,  1906,  p.  873. 

Brandeis,  Louis  D.:  Business,  A  Profession,  Boston,  1914.  Ch,  on  Com- 
petition That  Kills,  pp.  236-254. 

Report  of  the  Special  Committee  on  Maintenance  of  Resale  Prices,  Cham- 
ber of  Commerce  of  the  United  States,  Washington,  D.  C,  1916. 


CHAPTER  XIX 
ADVERTISING 

Advertising  is  a  sort  of  machine-made,  mass-production 
method  of  selhng,  which  supplements  the  voice  and  personal- 
ity of  the  individual  salesman,  much  as  in  manufacturing  the 
machine  supplements  the  hand  of  the  craftsman.  The  cost  of 
bringing  an  appeal  to  an  individual  by  advertising  has  been 
estimated  at  from  joo"  to  -glu-  of  the  amount  required  to  estab- 
lish contact  by  personal  visits.  Advertising  can,  therefore, 
be  spread  broadcast  as  a  drag-net,  while  salesmanship  must  be 
reserved  for  specially  remunerative  territory.  It  is  by  adver- 
tising that  the  maker  of  goods  can  to  some  extent  reestabUsh 
that  touch  with  consumers  which  was  lost  at  the  advent  of  the 
factory  system.  The  relative  influence  of  the  manufacturer 
in  the  economic  world,  in  comparison  with  the  middleman,  has 
been  increased  by  it.  The  moral  effect  of  advertising  upon 
the  one  who  issues  it  is  that  of  being  definitely  committed,  of 
having  taken  a  stand  of  a  public  nature,  of  having  invited 
the  judgment  of  many,  and  of  having  conceived  and  written 
of  ideals  —  ideals  of  healthfulness,  cleanliness,  safety,  and  econ- 
omy. Upon  the  general  public  there  can  be  no  doubt  but  that 
the  constant  sight  of  announcements  of  high  quahties  in  goods, 
and  the  constant  reading  of  protestations  of  social  service  as 
the  motive  of  business  action,  exerts  an  influence  in  the  direc- 
tion of  elevating  the  standards  of  taste  and  of  conduct.  It  is 
to  be  feared,  however,  that  the  constant  drawing  of  the  public 
th<ought  to  the  consideration  of  goods,  and  to  the  carnal  satis- 
factions involved  in  the  use  of  goods,  exercises  a  materializing 

382 


ADVERTISING  383 

influence,  and  propagates  the  error  that  happiness  lies  chiefly 
in  the  possession  of  things. 

Waste.  —  The  amount  spent  in  advertising  in  the  United 
States  annual!}^  has  been  variously  estimated,  by  those  con- 
cerned in  supervising  the  expenditure,  at  between  600  million 
and  1,000  million  dollars.  There  is  no  secret  made  by  adver- 
tising experts  of  the  enormous  waste  involved  in  this  depart- 
ment of  business  effort.  A  recent  text  on  advertising  explains 
as  follows:  ''Consider  the  case  of  a  publication  with  100,000 
readers  producing  3,000  repHes  and  300  sales.  Such  a  result 
is  a  remarkable  one  viewed  from  the  general  average  of  prac- 
tice, and  5'et  it  represents  only  three-tenths  per  cent  efficiency 
of  orders.  The  revenue  efficiency  might  be  less  than  the 
amount  mentioned  if  the  article  in  question  was  low  priced  and 
the  orders  represented  small  amounts."  ^  The  waste  is  from 
indiscriminateness  —  indiscriminateness  in  the  choice  of  goods 
to  make,  in  the  choice  of  facts  to  present,  in  the  choice  of 
mediums  to  carry  the  message,  and  so  in  the  choice  of  local- 
ities and  times  and  individual  consumers.  Besides  the  waste 
of  labor  and  material  agencies,  advertising  involves  a  waste  of 
the  nervous  energy  of  the  pubhc.  It  demands  perception  and 
an  act  of  judgment  from  the  majority  of  street-car  patrons,  to 
discover  the  few  who  want  Spearmint  gum.  It  flashes  a  daz- 
zling array  of  electric  lights  before  the  eyes  of  the  thousands 
who  pass  on  a  great  city  highway,  to  sift  out  a  couple  of  hun- 
dred patrons  for  a  rathskeller.  In  spite  of  a  w^astefulness  hke 
that  of  msensate  nature,  which  showers  down  ten  thousand 
acorns  to  secure  a  single  oak  sprout,  or  which  spawns  a  milUon 
eggs  to  bring  mto  being  a  single  herring,  advertising  has  es- 
tabhshed  itself  as  part  of  the  machinery  of  competition  which 
is  indispensable  for  the  time  being  in  many  branches  of  indus- 
try. The  individual  advertiser  maj^  reahze  the  waste,  but  he 
prefers  it  to  economic  extinction.     He  is  like  a  poor  swimmer 

^  Tipper,  Hollingworth,  Hotchkiss  and  Parsons,  Advertising,  N.  Y., 
1915,  pp.  10-11. 


384     ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

who  has  had  Uttle  traiiiiiig  and  loses  three-fourths  of  the  energy' 
he  puts  forth,  but  who  nevertheless  prefers  to  continue  to 
thrash  the  water  rather  than  be  drowned. 

Administrative  relations.  —  The  advertising  department 
should  be  a  section  of  the  selling  department,  the  advertising 
manager  working  imder  the  general  super^-ision  of  the  sales 
manager.  Such  a  relationship  recognizes  the  fact  that  adver- 
tising is  one  among  a  nmnber  of  agencies  of  selling;  and  that 
it  can  only  reach  its  highest  efficiency  when  adjusted  to  work 


^ 


Dealer 


I  Mtiniifactiirer 


i: 


Advertising 


[Consumer 

_2Z 


Consuiner  Consumer 


7       7 


Fig.  -46.     The  Place  of  .\d\~ertisixg  in  the  Distributiye  Chain 

harmoniously  with  the  other  agencies,  in  a  general  plan.  It  is 
the  function  of  advertising  to  spread  its  message  far  and  wide; 
to  knock  at  many  minds  in  the  hope  of  entering  a  few,  and  of 
rousing  them  to  write  for  catalogs,  and  so  get  themselves 
classed  as  prospective  purchasers.  But  such  effort  is  lost  if 
the  catalog  is  defective  or  the  follow-up  weak  or  offensive. 
Advertising  opens  the  case,  and  presents  the  general  facts,  pre- 
paring the  way  for  the  salesman,  who  is  to  go  into  details  with  a 
personally  adapted  appeal,  and  '* close."  But  such  a  case  will 
be  lost  if  the  salesman  is  a  grocerv^  clerk  who  has  not  the  goods 
in  stock,  and  has  never  heard  of  them,  but  with  ready  wit  pre- 
sents a  substitute.  WTiile  it  is  customary-  for  the  manufactm-er 
to  cany  on  his  relations  with  dealers  by  means  of  salesmen,  the 
function  of  advertising  is  to  appeal  to  consumers,  and  to  induce 
consimiers  to  apply  to  the  dealers,  in  the  hope  that  such  apph- 


ADVERTISING  385 

cation  will  stimulate  dealers  to  buy,  and  thus  close  the  circuit 
and  start  circulation.  But  circulation  depends  on  abilit}^  tc 
bring  the  goods  and  the  demand  to  the  dealer  at  the  same  time. 
Functions.  —  The  functions  of  an  advertising  manager  may 
be  Usted  as  follows: 

1.  Assist  in  the  choice  of  an  advertising  agency. 

2.  Assist  in  the  choice  of  a  trade  mark  and  a  package,  and 
in  the  determination  of  all  the  mercantile  characteristics  of 
the  product. 

3.  Take  part  in  preliminary  studies  necessary  to  secure  the 
information  on  which  the  advertising  campaign  will  be  based. 

4.  Plan  the  initial  distribution  of  goods. 

5.  Recommend  the  amount  of  the  advertising  appropriation. 

6.  Assist  in  the  choice  of  advertising  mediums. 

7.  Determine  the  size,  position,  and  frequenc}'  of  insertions. 

8.  Assist  in  the  construction  of  the  advertising  Hterature. 

9.  Institute  a  system  of  records  to  deduce  valuable  results 
from  the  experience  gained. 

Agencies.  —  In  many  cases  an  advertising  agency  will  be 
called  upon  to  assist  the  advertising  department  of  an  individual 
business.  Agencies  have  the  advantage  of  special  equipment 
and  experience.  They  can  estimate  with  some  degree  of 
accuracy  the  cost,  length,  and  general  character  of  campaigns 
which  will  yield  the  best  results  in  anj^  particular  case.  They 
have  had  experience  as  to  the  appeal  of  different  kinds  of 
copy.  They  can  buy  space  with  discrimination,  for  they 
know  what  results  each  medimii  has  accompHshed  in  previous 
campaigns  of  a  similar  sort.  They  can  check  up  insertions 
and  biU  board  displaj^s  cheaper  than  indi\ddual  advertisers  can 
do  it. 

The  advertising  manager  who  works  with  an  agency  will 
find  among  his  functions  that  of  obtaining  cop}^  which  is 
stamped  with  the  individuahty  of  his  house  or  product,  rather 
than  with  that  of  the  agency.  It  may  be  his  duty  to  see  that 
campaigns  are  not  prepared  too  long  in  advance  and  put  through 


386     ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

in  a  routine  manner,  but  are  kept  revised  in  accordance  with 
developments.  He  may  find  it  necessan'  to  exert  an  influence 
to  see  that  the  appropriation  is  spent  carefully  in  special  medi- 
ums, rather  than  distributed  in  an  easier  manner  in  large 
sums  with  prominent  pubhcations. 

Preliminary  studies.  —  Advertising  aims  to  commit  the 
producer,  educate  the  consumer,  supplement  the  salesman, 
convert  the  dealer,  and  eliminate  the  competitor.  Cliiefl^',  it  is 
a  link  between  producer  and  consimier;  as  such  it  can  only  be 
efficient  when  based  upon  a  knowledge  of  products  and  of 
human  needs.  The  expense  of  modem  advertising  campaigns, 
the  necessity  of  continuing  effort  when  a  campaign  is  once 
begun,  if  the  buds  of  inclination  started  by  each  appeal  are 
to  be  ripened  into  actual  demand  by  succeeding  appeals;  the 
fixity  of  design,  trade  mark,  warranties,  prices,  and  distributive 
agencies  essential  if  the  advertising  is  to  be  specific,  and  is  to 
build  up  a  s^'stem  of  distribution; — all  these  are  circumstances 
which  emphasize  the  need  of  making  a  careful  prelimmary 
preparation  for  a  campaign.  One  of  the  best  known  adver- 
tising agencies  has  said,  '']\Iost  of  the  failures  in  advertising 
come  from  guessing  at  things  which  could  just  as  well  be  proved. 
We  find  out  if  an  article  can  earn.*  a  precinct  before  attempting 
to  cany  the  coimtrj^ 

'^  A  house-to-house  canvass  develops  selling  arguments  quicker 
than  anything  else.  One  has  no  idea  how  many  theories  are 
upset  by  facts  imtil  he  meets  his  prospective  trade. 

''One  of  otrr  ablest  salesmen-in-print  spent  SI  .OCX)  worth  of 
time,  on  one  accoimt,  in  tramping  from  farm  to  farm.  He  was 
learning  what  arguments  would  induce  a  farmer  to  put  in 
acetylene  gas.  The  advertising  in  question,  ever  since,  has 
been  foimded  on  that  infoimation. 

''To  settle  one  point  in  one  line  of  argimient  we  sent  out 
letters  to  12,000  physicians.  Before  starting  the  advertising 
of  Quaker  Oats  we  spent  three  months  on  investigations, 
employing  130  men." 


ADVERTISING  387 

Choice  of  mediums.  —  Among  the  various  mediums  by 
which  the  advertiser  can  reach  the  consuming  pubhc,  or  the 
dealer,  may  be  mentioned  form  letters,  booklets,  magazines, 
trade  papers,  house  organs,  catalogs,  newspapers,  and  bill 
boards,  not  to  speak  of  electric  signs,  window  displays,  and 
samples.  These  means  are  capable  of  classification  in  various 
ways:  as  national  or  local,  of  general  appeal  or  class  appeal, 
paid  for  by  the  consumer  or  thrust  upon  him. 

Form  letters,  because  of  the  small  expense  connected  with 
them,  may  be  used  as  a  means  of  exploring  a  field  and  of  secur- 
ing information  for  the  guidance  of  the  major  campaign.  One 
successful  concern  uses  form  letters  in  batches  of  500  to  ascer- 
tain what  classes  of  persons  are  their  natural  patrons.  A 
batch  will  be  sent  to  officers  of  a  certain  rank,  as  to  presidents  of 
banks,  another  will  be  sent  to  cashiers,  a  third  to  tellers,  and 
so  on;  one  batch  will  be  sent  to  general  managers  of  manu- 
facturing corporations,  another  to  sales  managers,  etc.  The 
results  of  these  appeals  are  tabulated,  reduced  to  percentages, 
and  compared.  The  same  firm  sends  out  letters  at  different 
seasons  of  the  year.  From  such  tests  it  has  discovered  that 
the  profitable  months  for  it  are  February,  March,  April,  and 
September,  October,  and  November;  but  especially  March 
and  September,  with  emphasis  upon  the  latter  month.  Again, 
batches  of  letters  of  different  composition  and  embodying 
different  arguments  have  been  sent  out,  as  a  result  of  which 
it  has  been  possible  to  select  the  stronger  forms  of  appeal 
and  to  ehminate  the  weaker  ones. 

A  booklet  is  a  printed  letter  elaborated  as  much  as  possible, 
without  causing  it  to  be  separated  from  the  first  class  mail. 
It  provides  more  detail  than  a  letter;  but  retains  the  informal 
and  personal  tone.  It  offers  less  information  than  a  catalog; 
but  like  the  catalog  uses  illustrations,  and  in  some  cases  groups 
the  subject-matter  according  to  articles  offered.  It  trusts 
much  to  artistic  covers,  and  to  the  inclusion  of  disinterested 
information,  to  save  it  from  the  waste  basket.     In  its  appeal 


3SS     ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

to  art  it  resembles  the  calendar,  which  is  a  httle  poster:  in  its 
incorporation  of  general  infonnation  it  treads  in  the  steps  of 
the  ancient  almanac.  Booklets  are  now  occasionally  bound, 
since  it  has  been  discovered  that  a  man  will  hesitate  to  consign 
a  boimd  book  to  the  waste  basket. 

^lagazine  advertising  aims  to  give  wide  pubhcity  to  a  firm's 
name  and  trade  mark;  and  to  create  prestige  for  a  product  by 
the  impression  of  extensive  and  permanent  connections  and 
respectable  company.  The  dominant  motives  are.  like  those  of 
the  magazine  itself,  education  and  entertainment;  a  consid- 
erable degree  of  leisure,  wealth,  and  refinement  are  assumed  in 
the  reader.  Since  the  appeal  is  so  widely  scattered  geographi- 
cally, it  is  difficult  to  secure  adequate  distribution  of  goods  in 
the  hands  of  dealers.  The  advertisements,  therefore,  often 
contain  arrangements  for  taking  care  of  mail  orders.  The 
more  usual  plan  is  to  bid  for  inquiries,  stimulating  these  by  the 
offer  of  samples  or  free  booklets.  The  object  of  in\'iting  inquiries 
is  to  seciu^e  letters  which  can  be  laid  before  dealers  iu  the  places 
of  origin,  as  proof  of  the  existence  of  a  demand.  ^\Tien  an  ade- 
quate chstribution  of  merchanchse  is  finally  made  to  dealers, 
constmiers  are  referred  to  the  local  stores,  and  direct  sales,  or 
even  inquiries,  are  no  longer  encoiu^aged. 

Trade  papers  are  dominated  by  a  professional  or  vocational 
interest.  The  audience  is  usually  small  but  select,  technically 
well  uiformed,  in  earnest,  influential,  and  marked  by  certain 
professional  characteristics.  The  natiu'e  of  the  appeal  to  such 
an  aucUence  must  be  informational  on  the  highest  plane  of  accu- 
racy as  to  facts.  The  trade  paper  assiunes  an  important  place 
in  the  distribution  of  those  commodities  which  are  bought  on 
the  ad^-ice  of  a  dealer  or  professional  expert.  It  is  important 
for  articles  of  intricate  construction,  and  for  things  which  must 
be  installed  by  persons  of  experience. 

A  house  organ  may  be  described  as  a  succession  of  booklets 
issued  periodically  in  magazine  or  trade  paper  form,  and  sent 
to  a  permanent  maihng  hst  without  subscription.    It  possesses 


ADVERTISING  389 

the  advantage  over  the  booklet  of  dignity,  continuity,  and 
economy  in  cost  of  printing  and  maiUng.  Following  the  model 
of  a  magazine,  a  house  organ  may  contain  a  wide  range  of 
matter,  such  as  news  of  the  factory  departments,  helps  for  deal- 
ers, trade  news,  ginger  talks,  and  humorous  items.  It  thus 
provides  a  broad  common  ground  upon  which  advertiser,  dealer, 
and  consumer  may  stand  and  get  acquainted.  The  house 
organ  is  beyond  the  means  of  small  concerns.  It  is  exacting  as 
to  quality,  and  as  to  the  regularity  of  issue.  Its  chief  weakness  is 
that  it  is  laid  upon  a  busy  man's  desk  during  his  working  hours. 

A  catalog  aims  to  supply  all  information  needed  to  place  an 
order.  Because  of  its  expense  it  is  usually  to  be  distributed 
only  to  those  who  manifest  a  serious  interest,  either  by  making 
an  inquiry  for  it,  or  by  sending  for  a  booklet,  by  purchasing  an 
article,  or  otherwise. 

Newspaper  advertising  belongs,  in  general,  to  dealers.  A 
manufacturer  may  use  it  locally,  however,  to  precipitate  the 
uncrystalhzed  good-will  created  by  general  advertising,  in  the 
form  of  a  demand  with  the  local  dealer.  The  dominant  idea  of 
the  newspaper  is  news.  A  paper  a  day  old  is  dead.  The  reading 
is  hurried.  Advertisements  must  be  striking,  informal,  and 
timely:  a  brief  appeal  for  prompt  action.  The  medium  suffers 
from  the  heterogeneous  character  of  its  audience  and,  fre- 
quently, from  the  lack  of  censorship  of  the  advertising  columns. 

The  bill  board,  though  endeavoring  to  trace  its  lineage  back 
to  the  ancient  and  aristocratic  tavern  sign,  was,  in  reaUty, 
born  of  the  needs  of  the  plebeian  American  circus.  It  received 
some  refining  influences  in  its  early  years  at  the  hands  of  the 
theatre;  but  it  has  finally  arrived  at  maturity  as  the  chief 
agency  of  outdoor  pubhcity,  through  being  a  ''tax-payer" 
able  to  pay  the  carrying  charges  of  unimproved  real  estate,  and 
by  reason  of  the  standardization  wrought  by  national  associa- 
tions of  bill  posters. 

A  poster  is,  at  most,  a  picture  in  colors,  with  an  epigram; 
reduced  to  its  lowest  terms  it  is  a  name  or  a  symbol  printed 


390     ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

large.  Seen  but  for  a  moment,  it  must  convey  its  message  in  a 
flash.  Its  audience  is  the  average  population  of  the  street: 
the  appeal  is  indiscriminate.  It  possesses  many  defects :  among 
others  that  it  demands  attention  from  people  who  are  occupied 
with  making  their  way  along  the  street  and  in  avoiding  passen- 
gers and  vehicles.  No  two  positions  have  the  same  value.  It 
cannot  be  keyed.  It  is  difficult  to  check  up  showings.  The 
paper  is  easily  defaced  and  is  expensive  to  replace.  Fmther- 
more,  there  is  an  increasing  section  of  the  pubhc  which  regards 
the  bill  board  as  the  chief  defacement  of  American  cities. 
George  Fitch  has  said,  ''The  biU  board  not  only  reaches  out  and 
attracts  the  passer-by's  attention,  but  it  lams  him  with  a  club 
if  he  happens  to  be  a  man  of  good  taste/' 

Advertising  and  the  laws  of  attention.  —  The  steps  through 
which  the  advertiser  attempts  to  lead  the  prospective  pm'chaser 
are,  a  state  of  attention,  an  awakened  interest;  a  memoiy  im- 
pressed, and  a  detenni nation  formed  to  buy.  The  prehistoric 
struggle  of  the  human  race  for  survival  has  led  to  the  production 
of  a  tx-pe  of  beings  who  give  prompt  attention  to  large  objects, 
to  objects  the  nature  of  which  is  not  understood,  to  moving 
objects  and  those  possessing  the  appearance  of  hfe,  to  objects  of 
bright,  color,  to  sudden  appearances  and  disappearances,  to  the 
first  and  last  members  of  a  series  of  similar  objects  and,  in  gen- 
eral, to  all  those  things  which  contain  a  thi'eat  of  injmy  or  a 
promise  of  well  being.  There  is  in  modern  ci\TLized  life  an 
intense  competition  of  objects  and  ideas  to  become  the  subjects 
of  attention;  but  the  field  of  consciousness  is  very  narrow, 
conceniing  itseh  with  the  things  which  are  most  comprehensible 
to  us  and  which  seem  to  us  to  be  of  most  value.  Of  those 
tilings  which  are  intentionally  noted,  and  which  can  be  recog- 
nized at  a  later  time,  but  a  small  proportion  acquire  a  tendency 
to  be  voluntarily  recalled. 

The  eai-hest  advertisers  had  the  advantage  of  novelty:  the 
field  aroimd  them  was  silent.  As  rivals  appeared  and  competi- 
tion for  attention  increased,  novelty  became  more  difficult  to 


ADVERTISING  391 

attain  and  a  hunt  for  it  began.  This  hunt  has  now  become  a 
strenuous  breakneck  race,  with  the  pubHc  growing  more  and 
more  blase.  Each  new  effect  has  its  brief  period  of  freshness, 
and  then  swiftly  vanishes  into  the  background  of  the  common- 
place. To  travel  down  the  principal  street  of  a  large  city,  or  to 
look  over  the  advertising  pages  of  a  magazine,  is  much  hke 
watching  a  football  bleacher  filled  with  yelling  and  gesticulating 
people,  all  intent  upon  attracting  attention.  It  is  not  strange, 
therefore,  that  many  of  the  devices  used  by  advertisers  to  attract 
notice  to  themselves  are  strained,  bizarre,  and  in  ill  accord  with 
the  sober  merits  of  flour,  shoes,  soap,  and  breakfast  foods. 
Long  ago,  we  were  softly  appealed  to  by  ]\Iillais'  flaxen-haired 
boy  blowing  soap  bubbles.  Later,  w^e  enjoj^ed  the  gentle  pun  of 
the  young  lady  of  flower-like  beauty,  who  held  a  big  bag  in  her 
arms,  and  spoke  of  the  flour  of  the  family.  But  when  now  we 
see  health  pictured  as  an  angel  of  mercy  descending  to  reUeve 
an  invalid,  but  learn  that  the  real  message  concerns  a  patent 
medicine;  or  we  are  shown  an  aged  scientist  toiling  in  his 
laboratory,  but  the  subject  proves  to  be  merely  the  quahties 
of  one  of  the  innumerable  brands  of  smoking  tobacco;  or  we 
behold  a  prize  fighter  in  the  act  of  delivering  a  smashing  blow, 
onh^  to  be  told  that  a  certain  brand  of  canned  soups  will  knock 
out  indigestion,  our  principal  feeling,  if  we  pass  beyond  apathy, 
is  one  of  disgust.  The  warfare  on  the  consumer's  steps  is 
getting  so  obstreperous  that  there  is  needed  a  staff  of  economic 
detectives  to  stand  between  the  consumer  and  the  array  of 
advertisers  which  is  besetting  him.  The  question  is  an  open  one 
whether  this  protection  can  best  be  assured  by  giving  back  to 
the  merchant  some  of  his  old-time  functions  as  the  counselor 
and  next -friend  of  the  consumer,  or  whether  it  will  come  by 
evohing  a  new  form  of  advertising  censorship,  carried  out  by 
pubhshers,  equipped  with  scientific  laboratories  and  investi- 
gating experts. 

Advertising  and  interest. —  Attention  once  secured,  the  adver- 
tiser's next  object  is  to  awaken  interest.     The  process  is  the 


392     ADMIXISTRATIOX  OF  INDUSTRIAL  EXTERPRISES 


simple  but  by  no  means  eas}'  one  of  holding  the  attention. 
That  which  retains  attention  must  possess  parts  of  sufficient 
complexity  to  mvite  renewed  inspection;  and  must  reward 
study  by  revealing  new  points  of  significance.  A  rational  pro- 
gression must  be  opened  to  the  thought,  and  one  which  facih- 
tates  advance  toward  the  goal-idea  with  which  the  mind  of 
the  beholder  presently  becomes  possessed.  Things  mterest  us 
which  are  concrete  and  objective,  and  which  muTor  for  us  the 
world  of  the  senses,  rather  than  that  of  general  concepts.  Om' 
interest  is  aroused  when  tilings  reveal  associations  among 
themselves;  and  more  so  when  they  knit  themselves  onto  our 
previous  stock  of  knowledge,  and  reveal  a  new  significance  in  old 
facts.  Especially  do  things  mterest  us  wliich  concern  ourselves. 
A  table  of  the  strength  of  appeal  has  been  constructed  by 
]Mr.  H.  L.  HolKngworth/  on  the  basis  of  laboratory'  experi- 
ments, as  follows: 


Appeal  Strength 

Healthfuhiess 92 

Cleanhness 92 

Scientific  construction 88 

Time  saved 84 

Appetizing 82 

Efficiency 82 

Safety 80 

Durabihty 78 

Quahty 72 

^Modernity 72 

Family  affection 70 

Reputation  of  fimi 58 

Guarantee 58 

S^TQpath}' 54 

]\Iedicinal 50 


Appeal  Strength 

Imitation 50 

Elegance 48 

Courtes^^ 48 

Econom}^ 48 

Affirmation 42 

Sport 42 

Hospitahty 42 

Avoid  substitutes 32 

Clan  feehng 18 

Nobby,  etc 16 

Recommendation 14 

Social  superiority 12 

Imported 10 

Beautifying 10 


^  Tipper,  Hollingworth,  Hotchkiss  and  Parsons,  Advertising,  X.  Y., 
1915,  p.  85. 


ADVERTISING  393 

People  are  moved  by  pertinent  truth,  associated  with  per- 
tinent emotional  values.  Indefiniteness  of  conception,  or  weak- 
ness in  the  association  of  the  parts  of  a  composite  impression  is 
fatal.  Clearness,  mastery,  and  veracity  are  characteristics 
which  possess  never-failing  power  to  arrest  the  attention.  To 
arouse  interest  is  not  primarily  a  Uterary  process  of  dressing 
ideas  in  appropriate  language:  it  is  chiefly  a  matter  of  choos- 
ing the  right  ideas,  and  of  bringing  them  out  in  the  right 
order.  Skill  in  this  depends  upon  insight:  and  of  insight  we 
can  only  say,  it  is  talent  working  with  adequate  knowledge  of 
a  subject.  Successful  advertising  men  are  not,  to  any  consid- 
erable extent,  the  products  of  hterary  training.  Many  of  them 
are  former  newspaper  men  who,  in  their  apprenticeship,  learned 
to  get  at  facts,  and  to  choose  from  the  multitude  of  facts  those 
few  things  vital  for  a  given  purpose.  It  is  marvellous  how  much 
a  master  of  a  subject  can  compress  into  a  few  sentences,  and  yet 
preserve  an  air  of  ease  and  freedom  as  if  there  were  space  to  spare. 

Few  things  are  more  fatal  to  interest  than  the  suspicion  of 
exaggeration.  Whoever  looks  at  an  American  railroad  map, 
with  its  impossible  straight  hnes,  except  for  the  purpose  of 
amusement?  The  C.  W.  Hunt  Company  of  West  New  Brighton, 
N.  Y.,  manufacturers  of  machinery  for  handling  coal  and  ore, 
say  in  the  preface  to  one  of  their  catalogs,  '^Readers  of  this  and 
other  catalogs  and  advertisements  issued  by  the  company  are 
requested  to  bear  in  mind  the  fact  that  rhetorical  expressions 
and  superlative  adjectives  are  rigidly  excluded  therefrom.  It 
is  our  intention  that  every  statement  shall  not  only  be  correct 
in  a  business  sense,  but  shall  also  be  accurate  in  an  engineering 
sense.  When  materials  are  mentioned,  they  will  be  desig- 
nated by  their  correct  engineering  terms,  and  not  by  fancy, 
obscure,  or  semi-misleading  names."  How  refreshing!  How 
excellent  their  products  must  be,  to  permit  of  such  restraint! 
Restraint  refreshes  interest,  for  it  is  a  sign  of  strength  held  in 
reserve;  and  strength  always  attracts  attention,  for  it  contains 
the  promise  of  future  interesting  revelations  of  itself. 


394     ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

Advertising  and  memory. — When  attention  and  interest  are 
assured,  memory  will  be  impressed  in  the  degree  that  the 
matter  put  before  the  person  agrees  with  his  type  of  mental 
imagery.  Memory  is,  in  part,  a  function  of  the  sharpness  and 
vividness  of  the  original  unpression;  a  matter  which  depends 
not  only  upon  the  material  presented,  but  upon  the  occasion, 
the  preparedness  of  the  subject's  mind,  and  the  length  of  the 
observation.  It  depends  also  upon  the  frequency  w^ith  w^hich 
the  impression  is  renewed.  This  is  not  the  same  as  saying  that 
it  depends  upon  the  frequency  with  which  an  advertisement  is 
presented  to  the  consumer.  Attention  soon  passes  over  that 
which  does  not  unfold  new  significance.  The  frequency  which 
counts  is  that  of  the  intentional  apprehension;  not  of  the 
approach,  nor  even  of  mere  passive  recognition.  There  is  in 
advertising  much  stupid  repetition  which  overlooks  this  point, 
and  proceeds  on  the  assumption  that  if  a  trade  mark  can  be 
shown  often  enough  to  a  reader,  or  an  electric  sign  can  be  flashed 
frequently  enough  before  the  passer-by  on  the  street,  his  trade 
must  come  as  a  mere  matter  of  physics. 

The  fallacy  of  this  is  illustrated  by  the  psychologist  IMeu- 
mann,  who  said,  ''I  made  systematic  inquiries  of  a  number  of 
students  as  to  whether  they  could  describe  the  wall-paper  of 
the  rooms  in  which  they  studied;  whether  they  could  describe 
the  dishes  w^hich  they  used  every  day  at  table;  how  many 
steps  they  ascended  daily  in  the  university  stairways;  w^hether 
they  could  name  the  buildings  which  they  passed  every  day; 
whether  they  could  describe  or  sketch  the  most  striking  church 
spires  of  the  city;  whether  they  could  sketch  the  outline  of 
mountain-peaks  which  they  have  seen  often  and  attentively; 
whether  the  four  upon  their  watch  dials  is  indicated  by  four 
I's  or  by  IV,  and  the  like.  To  all  questions  of  this  sort  one 
obtains  exceedingly  uncertain  or  even  erroneous  answers. 
Remembrances  of  every-day  experiences  are  frequently  so  un- 
certain that  the  student  becomes  vexed  and  wishes  to  discon- 
tinue the  experiment. 


ADVERTISING  395 

''These  and  similar  observations  prove  that  memory  fails  to 
retain  many  impressions  that  come  to  us  countless  times  during 
our  lives.  They  prove  further  that  it  is  not  the  mere  repetition 
of  impressions  as  such  which  constitutes  imprinting,  and  makes 
it  possible  for  us  to  reproduce,  especially  to  reproduce  freely; 
on  the  contrary  we  find  that,  as  a  rule,  we  remember  only 
what  we  have  apprehended  attentively  and  with  the  intention 
of  remembering  it."  ^ 

Memory  is  also  a  function  of  the  nmnber  and  strength  of  the 
associations  which  are  estabUshed  between  an  idea  and  other 
ideas  in  the  mind;  by  virtue  of  which  when  any  of  the  related 
concepts  emerge  into  consciousness,  the  particular  idea  is  drawn 
up  also.  We  remember  best  those  things  which  are  easily  classi- 
fied and  for  which  we  can  find  an  adequate  word-symbol  to 
serve  as  a  name.  In  proceeding  from  one  idea  to  another,  in 
the  act  of  recalUng,  we  advance  more  easily  from  particular 
instances  to  general  categories  than  in  the  reverse  direction. 
We  think  more  often  of  soap  when  ''Ivory  "  is  mentioned,  than 
of  "Ivory"  when  soap  occurs  to  mind.  Those  things  which 
present  themselves  to  us  as  parts  of  a  simple  sequence,  or  as 
steps  in  a  logical  chain  we  recall  most  easily  in  the  order  in 
which  they  are  learned:  A,  B,  C,  D,  E,  rather  than  E,  D,  C, 
B,  A.  Since  the  typical  consumer's  sequence  is  first  the  need 
and  then  the  commodity,  it  is,  as  Mr.  Hollingworth^  has  pointed 
out,  more  effective  to  advertise,  "The  best  Christmas  gift  is 
a  Copley  print,"  than  to  advertise,  "A  Copley  print  forms 
the  best  of  Christmas  gifts." 

Disagreeable  associations  are  to  be  avoided.  The  disparage- 
ment of  rival  products  is  inefficient  advertising,  inasmuch  as  it 
causes  defects  to  be  recalled  along  with  the  advertised  article, 
and  leads  to  the  conviction  in  the  reader's  mind  that  the  class  of 

1  E.  Meumann,  The  Psychology  of  Learning,  N.  Y.,  1913,  Trans,  by 
J.  W.  Baird,  pp.  315-316. 

2  H.  L.  Hollingworth,  Advertising  and  Selling;  The  Principles  of  Appeal 
and  Response,  N.  Y.,  1913,  pp.  192-196. 


396     ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

articles  in  question  is  imreliable.  One  advertising  expert  has 
declared  that  as  the  result  of  the  pubhcity  of  the  Schhtz  Brewing 
Company,  he  could  not  think  of  beer  without  thinking  of  "that 
skunky  flavor."  As  a  rule  this  law  of  association  is  well  ob- 
ser^-ed.  None  of  the  canned-beef  concerns  have  exploited  in 
then  advertisements  the  fact  that  they  supplied  the  United 
States  Government  during  the  Spanish  War! 

BIBLIOGRAPHY 

HoUingvorth.  H.  L.:   Adverti5mg  and  Selling:   The  Principles  of  Appeal 

and  Response,  X.  Y.,  1913. 
Scott,  W.  D.:   The  Psychology-  of  Advertising.  Boston.  190S. 
Scott,  W.  D.:   Influencing  Men  in  Business,  N.  Y..  1911. 
Tipper.  H..  Hollingworth.  H.  L.,  Hotchkiss,  G.  B..  and  Parsons,  F.  A.: 

Advertising:    Its  Principles  and  Practice,  X.  Y.,  1915. 
Wadsworth,  G.  B.:    Principles  and  Practice  of  Advertising,  X".  Y.,  1913. 
Hess,  H.  W.:    Productive  Advertising,  Philadelphia,  Pa.,  1915. 
Calkins.  E.  E.:    The  Business  of  Advertising,  X.  Y.,  1915. 
Cherington,  Paul  T.:   Advertising  as  a  Business  Force,  X.  Y.,  1913. 
Parsons,  F.  A.:    Principles  of  Advertising  Arrangement,  N.  Y.,  1912. 
Cal\'in,   S.   I.:    The   Mistakes   of    Advertisers,   The    Independent,   Sept. 

5,  1912,  Vol.  73,  pp.  526-oo2. 


CHAPTER  XX 
THE   TRAFFIC   DEPARTMENT 

Administrative  relations. —  The  traffic  department  should 
be  a  division  of  the  sales  department,  the  traffic  manager  "being 
under  the  general  supervision  of  the  sales  manager.  In  defense 
of  such  an  arrangement  it  may  be  said  that  the  delivery  of 
merchandise  to  a  carrier  is  an  act  more  closely  connected  with 
selling  than  with  manufacturing.  Goods  are  shipped,  where, 
when,  and  in  the  quantities  ordered  by  the  selling  department. 
The  cost  of  delivery  is  often  absorbed  as  a  part  of  the  selling 
price,  and  so  becomes  an  item  the  limits  of  which  must  be  con- 
trolled by  the  same  factors  which  control  the  general  process  of 
price  setting.  The  selling  department  finds  its  field  determined, 
in  part,  by  the  speed  and  cost  of  shipment.  Errors  in  ship- 
ment, or  delays,  bring  complaints  to  the  sales  department  for 
adjustment,  and  may  even  require  the  sending  out  of  duplicate 
merchandise. 

The  traffic  department  should  furnish  to  all  buying  officers 
on  request,  information  as  to  the  length  of  time  required  to 
secure  supplies  from  designated  places,  and  as  to  the  relative 
freight  rates  from  rival  supplying  points.  It  will  ship  merchan- 
dise on  order  bills  of  lading,  when  instructed  to  do  so  by  the 
credit  department;  and  on  the  motion  of  the  credit  man  it  will 
exercise  the  right  of  stoppage  in  transitu. 

Freight  rates. —  It  is  the  chief  business  of  a  traffic  depart- 
ment to  compile  information  as  to  the  rates  of  freight  applying 
to  the  merchandise  made  or  handled  by  the  house,  within  the 
territory  which  constitutes  the  field  of  operations.    The  chief 

397 


398     ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

factors  which  enter  into  the  determination  of  freight  rates  are: 
(1)  the  value  of  the  ser^'ice  to  the  shipper  (a  sum  wiiich  may  be 
measured  roughh^  by  the  difference  between  the  value  of  the 
merchandise  at  the  initial  point  and  the  value  of  similar  mer- 
chandise at  the  point  of  destination) ;  (2)  the  cost  of  performing 
the  service,  including  not  only  an  indefinite  share  of  the  joint 
costs  of  carn-ing  on  the  freight  service  of  the  carrier  as  a  whole, 
but  any  special  costs  such  as  those  for  special  cars,  special 
switcliing,  prolonged  use  of  terminal  space,  the  labor  of  tend- 
ing, as  in  taking  care  of  cattle,  and  the  risk  of  loss,  such  as  the 
Hability  of  fruit  spoihng.  etc.;  (3)  competition  with  other  car- 
riers; (4)  protection  of  vested  interests;  and  (5)  comphance 
with  the  requh'ements  of  law. 

The  first  step  taken  by  the  railways  in  determining  freight 
rates  is  to  group  the  many  thousands  of  articles  which  may 
offer  themselves  for  transportation  into  a  few  classes,  so  that  a 
correspondingly  small  nimiber  of  class  rates  will  pro\dde  a  deter- 
mination of  the  charge  to  be  made  in  any  individual  case. 
The  railroads  of  each  great  region  are  united  in  the  support 
of  classification  conm^iittees.  There  are  tliree  classifications: 
Official,  Southern,  and  Western.  The  Official  classification, 
which  covers  the  territory  north  of  the  Ohio  and  Potomac 
rivers,  and  east  of  the  ^Mississippi  River,  Lake  ^lichigan,  and  a 
line  connecting  Chicago  and  St.  Louis,  contams  six  nmnbered 
classes,  together  with  six  multiples  of  fii'st  class,  as  weU  as  rule 
25  which  fijxes  a  rate  15  per  cent  below  second,  and  rule  26 
which  fixes  a  rate  20  per  cent  less  than  third,  and  rule  28  which 
lies  midway  between  third  and  fourth.  The  Southern  classifi- 
cation includes  the  region  south  of  the  Ohio  and  Potomac  rivers 
and  east  of  the  ^Mississippi  River.  It  consists  of  sLx  numbered 
and  seven  lettered  classes  together  with  four  multiples  of  first 
class.  The  Western  classification,  which  covers  the  region  west 
of  Official  and  Southern  territory,  contams  five  nmnbered  and 
five  lettered  classes  and  six  multiples  of  fii'st  class.  The  classi- 
fication of  an  article  depends  not  only  upon  its  natm^e  but  upon 


I 


THE  TRAFFIC  DEPARTMENT  399 

the  method  of  packing,  crating,  and  boxing  used,  and  upon 
whether  or  not  the  shipment  is  a  carload  or  less.  Classification 
committees  influence  rates,  not  only  by  assigning  articles  to 
classes,  but  by  fixing  the  allowable  minimum  carloads,  by 
determining  the  status  of  mixed  carloads,  by  prescribing  the 
regulations  for  handling  bulk  freight,  by  fixing  private  car 
mileage  allowances,  and  by  determining  the  precise  nature  of 
the  various  stipulations  contained  in  the  uniform  bill  of 
lading. 

The  classification  being  completed,  the  next  step  in  rate  mak- 
ing is  for  the  individual  roads  to  fix  the  rates  to  be  charged  for 
moving  the  different  classes  of  freight  between  the  stations  on 
their  fines.  They  also  enter  into  joint  rate  agreements  with 
each  other  on  through  business.  A  railroad  may  withdraw  an 
article  from  its  class  and  provide  for  it  a  special  or  commodity 
rate.  This  power  has  been  exercised  so  freely  that  there  are  in 
existence  hundreds  of  thousands  of  such  special  rates.  As  a 
rule  commodity  rates  are  lower  than  the  class  rates:  they  are 
applied  chiefly  to  low-grade  materials  which  are  moved  in  large 
quantities. 

Local  and  non-competitive  freight  rates  are,  in  general, 
either  straight  mileage  tariffs,  or  tariffs  in  which  the  charges  in- 
crease with  the  mileage  but  not  proportionally.  Through  rates 
are  competitive  adjustments  between  markets  and  between 
rival  carriers.  The  initial  through  rates,  which  fix  the  bases 
for  all  others,  are  those  between  the  great  cities,  and  those 
which  are  established  where  the  competition  of  ocean,  lake, 
canal,  or  river  carriers  sets  a  definite  maximum  to  rail  charges. 
The  determination  of  initial  or  base  rates  results  in  the  estab- 
lishment of  certain  places  as  basing  points.  Nearby  points,  or 
points  highly  competitive  with  the  basing  points,  tend  to  take 
this  base  rate,  and  so  to  become  common  points  with  the  basing 
point.  The  rates  for  other  localities  within  the  influence  of  the 
basing  point,  but  so  far  removed,  or  so  unimportant,  that  com- 
petition does  not  bring  about  a  parity,  will  usually  be  adjusted 


400     ADMIXISTRATIOX  OF  IXDUSTRIAL  ENTERPRISES 

either  as  a  percentage  more  or  less  than  the  base,  or  as  an  arbi- 
trary- sum  or  fixed  differential  more  or  less  than  the  base  rate. 

In  Official  territory'  the  foundation  on  which  all  other  deter- 
minations are  based  is  the  rate  between  New  York  Cit}'  and 
Chicago.  Direct  railway  routes  are  made  full  rate  or  standard: 
the  roimd-about  ones,  and  the  lake,  ocean,  and  canal  combma- 
tions  are  lower  differential  routes.  The  chief  inland  cities  be- 
tween New  York  and  Chicago  take  rates  composed  by  adding 
to  a  fixed  terminal  charge  a  mileage  charge  proportional  to  the 
distance.  Such  rates  are  represented  in  practice  as  a  percentage 
of  the  through  rate,  and  are  apphed,  finally,  throughout  narrow 
concentric  zones  embracing  a  series  of  north  and  south  points. 
Pittsburg  takes  60  per  cent  of  the  Cliicago-Xew  York  rate, 
Cleveland  takes  71  per  cent,  Detroit  78  per  cent,  and  Indianapo- 
lis 93  per  cent.  The  even  Chicago  rate,  or  100  per  cent,  apphes 
to  a  zone  passing  southeasterly  thi'ough  Indiana  to  Louis\'iUe. 
Beyond  this  zone,  as  far  west  as  the  Mississippi  River,  locahties 
are  charged  a  percentage  above  the  base.  The  St.  Louis  rate 
is  116  per  cent  of  the  Chicago  rate.  The  Atlantic  ports  are 
balanced  in  their  relations  to  each  other  by  carefully  measured 
fixed  differentials:  Baltimore  and  Philadelphia  being  given  a 
few  cents  per  100  potmds  advantage  over  New  York.  The  port 
differentials,  in  turn,  condition  rates  west  from  and  east  to 
nearby  places:  the  Pliiladelphia  rate  appUes  to  Wilkesbarre; 
the  Baltimore  rate  apphes  to  Altoona,  Newport  News,  Norfolk, 
and  to  the  chief  inland  cities  of  Virginia.  New  England  is 
charged  on  eastbound  shipments,  originatmg  west  of  Buffalo, 
Pittsburg,  and  WTieehng,  a  few  cents  over  the  New  York  rate, 
this  rate  being  blanketed  to  aU  New  England  points.  For  ship- 
ments out  of  New  England  to  Cleveland  or  beyond,  the  New 
York  rate  is  charged. 

In  southern  territory,  rail  rates  along  the  Atlantic  seaboard 
are  dominated  by  the  charges  of  ocean  carriers.  All-rail  charges 
between  northern  and  southern  ports  are  a  shght  advance 
over  water  rates,  representing  the  advantage  of  greater  speed. 


THE  TRAFFIC  DEPARTMENT  401 

Rail-and-water  rates  are  lower  than  all-rail  rates  for  the  region 
east  of  Knox\411e,  Chattanooga,  Meridian,  Montgomery,  and 
Pensacola.  The  controlling  base  in  the  eastern  South  is  the  rate 
between  Atlanta  and  the  North.  All  northern  ports  have  the 
same  sea-and-rail  rates  to  that  city,  while  Atlanta  rates  are 
extended  to  the  chief  cities  of  western  Georgia.  The  all-rail 
base  in  the  eastern  South  is  the  rate  from  Baltimore  to  Atlanta. 
In  the  North  this  is  built  upon  by  giving  to  the  eastern  seaboard 
cities  fixed  differentials  above  the  Baltimore  rate,  and  by  con- 
structing back  of  each  port  a  small  common-point  territory.  In 
the  South  a  few  cities  are  made  common  points  with  Atlanta, 
while  other  important  cities  are  given  a  differential  either  over 
or  under  the  Atlanta  rate. 

In  bringing  the  Northwest  and  the  eastern  South  into  relation, 
the  first  step  is  to  equahze  competition  between  the  East  and 
West.  This  is  done  by  making  the  rate  from  all  Ohio  River 
crossings  to  Atlanta  the  same  as  the  Baltimore- Atlanta  rate. 
Cities  north  of  the  river  add  to  the  Ohio  River  rate  the  lowest 
local  rate  to  the  river,  no  matter  which  crossing  the  freight 
actually  uses.  St.  Louis  has  the  river  rate  plus  a  differential, 
while  Memphis  subtracts  a  differential  from  it.  The  central 
South  takes  rates  from  the  Northwest  which  are  differentials 
lower  than  the  Atlanta  rate.  Freight  moving  into  the  North- 
west from  the  South  is  composed  chiefly  of  a  few  products,  and 
is  controlled  by  commodity  tariffs.  Local  rates  in  the  South 
are,  for  short  distances,  mileage  tariffs.  If  the  distances  are 
considerable,  or  if  there  is  competition,  a  basing-point  system 
is  used;  that  is  to  say,  the  rates  are  found  by  taking  the  com- 
bination to  and  beyond  the  last  intervening  important  point, 
or  to  and  back  from  the  next  basing  point  bej^ond,  whichever 
may  be  the  lower.  North  and  south  movements  near  the  Mis- 
sissippi River  are  calculated  with  reference  to  the  Cairo-New 
Orleans  charge,  which  is  set  low  enough  to  discourage  river 
traffic  in  everj^thing  except  such  low-grade  freights  as  coal  and 
lumber.     Northern  cities  are  charged  fixed  differentials  over 


402     ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

this  rate:  inteiTQediate  points  along  the  river  are  grouped  into 
large  common-point  territories. 

Texas  internal  rates  are  modified  distance  tariflts  up  to  about 
200  miles,  beyond  which  they  become  flat  rates,  regardless  of 
distance.  For  connections  '^\'ith  the  outside  world  a  large  part 
of  that  state  is  a  common-point  territory'.  Into  and  out  of  this 
region  Gulf-and-sea  rates  from  the  East,  via  Texas  ports,  and 
all-rail  rates  ^-ia  St.  Louis,  are  adjusted  upon  a  competitive  basis. 
The  St.  Louis  rate  is  then  extended  to  a  few  competitors  hke 
Kansas  City:  while  cities  like  Louisville,  Cincinnati,  and  Chi- 
cago add  a  differential,  and  those  like  ^lemphis  and  New 
Orleans  take  one  off". 

East  and  west  movements  beyond  Chicago  are  controlled 
by  adjustments  between  the  ^Mississippi  and  Missomi  rivers. 
The  main  traffic  points  on  the  Missomi  River  from  Kansas 
City  to  Omaha  are  made  common  points.  To  them  Mississippi 
River  rates  from  St.  Louis  to  Dubuque  inclusive  are  ecjual. 
From  middle. western  cities  to  the  IMissomi  River  points,  the 
rates  are  a  differential  over  the  inter-river  base,  and  are  the  same 
amoimt  whichever  river  crossing  is  used.  From  the  far  East 
to  the  Missomi  River  the  rates  are  the  same  via.  St.  Louis  and 
Chicago.  The  Chicago-^NIissomi  River  rate  is  extended  by  giving 
it  to  Cairo  as  far  noilh  as  St.  Joseph,  and  to  ^linneapoHs 
and  St.  Paul  as  far  south  as  Nebraska  City.  Rates  to  the  East 
from  the  states  of  the  middle  and  noithem  plains  are  so 
adjusted  as  to  secm^e  a  practical  equality  of  charge  whichever 
eastern  route  is  used. 

Colorado  rates  are  based  on  Denver.  To  this  city  the  Atlan- 
tic-Gulf water-and-rail  rates  are  a  small  differential  less  than 
the  all-rail  rates  through  Chicago  and  St.  Louis.  Denver  rates 
are  shared  by  Colorado  Springs.  Pueblo,  and  Trinidad.  Other 
poiats  take  a  Denver  and  local  charge,  as  does  the  territors^ 
hing  between  the  Colorado  common  points  and  the  Utah 
common  poiats. 

The  next  section  of  the  traffic  trunk  extends  from  Denver 


THE  TRAFFIC  DEPARTMENT  403 

to  Salt  Lake  City.  For  shipments  from  the  Missouri  River  or 
from  further  east,  the  charge  to  Utah  is  less  than  the  Denver 
rate  plus  the  local  charge  to  destination.  This  arrangement 
is  made  to  permit  Utah  points  to  compete  in  the  territory- 
lying  between  them  and  Colorado  points.  The  leading  cities 
of  Utah  from  Spanish  Fork  to  Ogden  are  common  points  with 
Salt  Lake  City.  In  this  section  of  the  United  States  it  becomes 
necessary  to  adjust  the  rates  from  New  York  via  Panama  and 
eastward  from  San  Francisco,  with  the  all-rail  rates  west. 

The  Utah  general  adjustments  are  extended  to  Montana  com- 
mon points.  Montana  points  take  the  same  rate  from  the  East 
by  way  of  Chicago  or  St.  Louis.  They  also  receive  merchandise 
from  Denver  or  Salt  Lake  City  on  a  parity. 

Rates  from  the  eastern  part  of  the  United  States  into  western 
inter-mountain  territory  add  a  greater  or  less  percentage  to 
transcontinental  rates,  depending  upon  the  district  of  origin. 
Territory  west  of  the  Mississippi  River  is  zone  1 ;  thence  east 
to  a  line  passing  through  Chicago  is  zone  2;  thence  east  to 
Buffalo  and  Pittsburg  is  zone  3;  east  of  these  localities,  but 
short  of  the  coast,  is  zone  4;  while  the  coast  is  zone  5.  From 
zone  1  the  shorter  haul  may  not  be  charged  more  than  the 
longer  one;  from  zone  2  it  may  be  7  per  cent  higher;  from  zone 
3  it  may  be  15  per  cent  higher;  and  from  zones  4  and  5  it  may  be 
23  per  cent  higher. 

To  and  from  the  Southwest  charges  are  based  on  Santa  Fe 
and  Albuquerque,  to  which  points  the  all-rail  rate  from  the 
East  is  made  equal  to  the  combination  of  vessel  freight  to 
Galveston,  plus  the  rail  rate  inland.  Points  west  of  these  cities 
in  New  Mexico  and  Arizona  take  the  Albuquerque  through 
rate  plus  the  local  rate  to  destination. 

Transcontinental  tariffs  are  fixed  in  competition  with  ocean 
carriers.  In  the  case  of  westbound  through  shipments,  the 
Pacific  coast  cities  are  common  points,  and  the  rates  to  them 
are  practically  the  same  from  any  major  point  east  of  the  Rocky 
Mountains  for  the  higher  classes,  from  any  point  east  of  the 


404     ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

Missouri  River  for  the  lower  classes,  and  from  any  point  east  of 
the  Mississippi  River  for  commodity  rates.  Eastbound  trans- 
continental rates  generally  advance  at  Colorado-Montana 
points,  and  again  a  little  east  of  the  Missouri  River,  while  a 
third  advance  takes  place  a  Uttle  east  of  the  Mississippi  River, 
and  a  final  one  when  Lake  ^lichigan  or  the  eastern  boundary 
of  Illinois  is  passed.  Most  of  the  eastbound  freight,  however, 
is  composed  of  a  few  commodities  such  as  lumber  and  fruit, 
and  is  moved  at  special  rates  which  blanket  the  eastern  por- 
tion of  the  country. 

The  general  effect  of  the  American  rate  system  is  to  favor 
large  cities  at  the  expense  of  small  ones;  to  favor  localities 
in  which  much  of  a  given  kind  of  freight  originates  in  com- 
parison with  localities  with  a  wider  range  of  production;  to 
favor  certain  articles  which  move  at  commodity  rates  at  the 
expense  of  other  things  which  are  charged  according  to  their 
class;  and  to  favor  shippers  who  possess  such  facilities  as 
switches,  switching  engines,  and  short  private  lines,  or  private 
freight  cars,  in  comparison  with  those  who  use  the  agencies 
provided  by  the  carriers. 

It  is,  of  course,  the  particular  business  of  a  traffic  manager 
employed  by  a  private  shipper  to  secure  such  knowledge  of 
freight  rates  as  applies  particularly  to  the  individual  business. 
The  rates  may,  for  example,  be  tabulated  by  classes  to  various 
destinations,  as  illustrated  by  the  subjoined  comparison  of 
charges  in  cents  per  hundred  pounds  from  Detroit: 

Change  of  rates.  —  New  classifications  are  issued  every  eight 
or  ten  months,  and  each  issue  embodies  hundreds  of  changes. 
The  need  of  the  shipper  carefully  watching  the  classification 
may  be  illustrated  by  the  changes  of  June  and  July  1915.  Sup- 
plement No.  18  of  Official  classification  No.  42,  which  became 
effective  June  2,  contained  changes  of  importance  to  shippers 
of  dangerous  articles,  and  of  articles  the  rates  of  which  are 
predicated  chiefly  on  their  value;  supplement  No.  20  of  South- 
ern classification  No.  40,  which  went  into  force  July  12,  made 


THE  TRAFFIC  DEPARTMENT 


405 


Rail  Rates 

From 

Detroit 

. 

to  — 

I 

Classes 

1 

2 

3 

4 

5 

6 

Cleveland 

31.5 

27.3 

21 

14.7 

11.6 

8.4 

Toledo 

20 

17 

13 

10 

8 

6.5 

Buffalo 

37.8 

32.6 

24.2 

16.8 

13.7 

10.5 

Chicago 

38.9 

33.6 

24.7 

16.8 

13.7 

10.5 

Milwaukee 

45.2 

38.9 

28.9 

20 

15.8 

12.6 

Duluth 

85.3 

72 

54 

38.1 

31.9 

25.6 

Sandusky 

25.2 

23.1 

20 

13.1 

9.5 

7.4 

Port  Huron 

22.1 

18.9 

14.7 

10.5 

8.4 

6.8 

drastic  changes  in  many  articles;  supplement  No.  6  of  Western 
classification  No.  53,  which  became  effective  July  15,  contained 
changes  of  classification  for  291  articles. 

Since  the  passing  of  the  Elkins  law  of  1903  it  is  no  longer 
permissible  for  an  individual  shipper  to  bargain  secretly  with  a 
carrier  for  rates.  It  is,  however,  still  possible  for  a  traffic 
manager  of  an  industrial  corporation,  either  singly  or  in  associa- 
tion with  others  in  the  same  industry  or  locality,  to  petition 
the  classification  committees  for  a  reduction  of  the  class  of 
certain  articles.  Such  a  petition  should  recite  the  pertinent  facts 
such  as  the  relation  of  bulk  to  weight;  whether  the  article  is 
crude,  partly  manufactured,  or  finished;  whether  it  is  shipped 
loose  or  packed,  set  up  or  knocked  down,  crated  or  boxed; 
the  market  values  in  different  localities,  especially  at  shipping 
and  destination  points;  the  length  and  direction  of  the  haul; 
the  time  of  year  carried;  the  amount  of  traffic  likely  to  offer 
itself;  and  mention  of  any  special  labor  required  to  handle 
it,  or  any  special  risk  of  loss  incurred  in  transit. 

The  case  for  the  granting  of  a  commodity  tariff,  or  the  change 
of  rate  of  such  a  tariff,  has  to  be  presented  to  the  rate-making 
officer  of  the  individual  railroad,  usually  the  traffic  manager 


406     ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

or  the  general  freight  agent.  The  petition  should  elucidate  the 
competitive  conditions  controlling  trade  in  the  article  concerned, 
indicating  the  producing  and  consuming  centres,  giving  the 
freight  rates  at  which  rival  producers  reach  essential  markets, 
and  stating  the  rates  the  petitioners  require  in  order  to  reach 
those  markets  on  equal  terms. 

The  power  of  the  railways  to  favor  a  shipper  is  not  limited 
to  the  making  of  a  classification  and  the  fixing  of  class  and 
commodity  rates.  It  involves  a  host  of  other  matters,  such  as 
allowances  for  private  switching,  privileges  of  milhng  in  transit, 
permits  for  partial  unloading  of  carloads  at  intermediate  points, 
rules  as  to  mixed  carloads,  allowances  of  free  packing  material, 
methods  of  estimating  weights,  free  storage  time,  special  load- 
ing and  unloading  charges,  and  promptness  or  delay  in  furnish- 
ing cars.  There  is,  consequently,  a  large  field  of  effort  in  which 
the  traffic  manager  can  make  himself  useful  to  his  employer, 
whether  that  employer  be  a  private  concern,  or  an  association 
representing  the  interests  of  an  industry  or  of  a  city. 

Routing.  —  Each  railway  has  in  operation  at  all  times  a  sys- 
tem of  standard  routings  for  freight  moving  to  given  destina- 
tions. These  routings  are  based  upon  harmony  of  interest 
between  the  receiving  road  and  some  connecting  carrier,  upon 
joint  traffic  agreements,  upon  experience  as  to  promptness  in 
the  return  of  cars,  and  upon  the  ease  or  difficulty  with  which 
trains  are  made  up  and  broken  up  at  different  diverting  points. 
The  routing  which  the  initial  carrier  prefers  will  commonly 
give  the  most  speedy  transit,  but  it  is  not  necessarily  the  one 
which  will  give  to  the  shipper  the  lowest  rate.  The  problem  of 
routing  a  shipment  to  a  distant  important  traffic  centre  is  a 
difficult  one,  especially  if  the  initial  point  is  also  a  large  railroad 
centre.  It  involves  not  only  the  choice  of  the  initial  carrier  but 
the  formation  of  one  particular  chain  of  carriers  out  of  numer- 
ous possible  ones  connecting  the  two  places.  American  rail- 
way competition  has  developed  an  alm^ost  bewildering  choice 
of  roundabout  traffic  combinations  offering  service  at  different 


THE  TRAFFIC  DEPARTMENT  407 

prices.  At  one  time  the  rate  on  grain  in  carloads  from  St 
Louis  to  Virginia  City,  Va.,  was  ITf  cents  per  100  lbs.,  by  the 
Official  classification.  At  the  same  date  it  was  16  cents  by  the 
Illinois  classification;  but  the  rate  from  St.  Louis  to  Louisville 
was  then  4  cents,  while  the  charge  from  that  city  to  Virginia 
points  by  the  Southern  classification  was  9  cents,  or  a  total 
through  rate  of  13  cents.  Mr.  Stickney,  President  of  the 
Chicago  and  Great  Western  Railway,  tells  of  a  traffic  manager 
who  found  11  different  rates  on  the  same  article  from  his  station 
to  Boston.  No  railroad  official  will  furnish  a  shipper  with  a 
systematic  appraisal  of  the  advantages  and  disadvantages  of 
the  different  routes  open  to  him.  No  pubhc  commission  has 
yet  undertaken  to  furnish  such  a  digest  of  information.  The 
shipper  must  depend  upon  his  own  traffic  department,  unless 
there  is  a  local  traffic  association  available. 

Billing.  —  The  classification  books  and  the  commodity  rate 
schedules  involve  thousands  of  distinctions  and  definitions  which 
determine  what  charge  is  to  be  made  for  shipments.  Thus, 
Official  classification  No.  36  contains  the  following  L.C.L. 
(less  than  carload)  determinations: 

^l^ss Ig^  class 

Window  glass,  common,  N.O.S. Rule  25  ^ 

Furniture,  N.O.S Double  1st  class 

Filing  cabinets,  N.O.S 1st  class 

Desks,  N.O.S 1 1  class 

Chairs,  N.O.S li  class 

Stationery,  N.O.S 1st  class 

Pads  of  paper  and  tablets 3d  class 

Writing  paper 3d  class 

Agricultural  implements,  N.O.S Double  1st  class 

Harrows  or  plows 1st  class 

From  a  commodity  tariff  we  select  the  following  mass  of 
specifications  as  by  no  means  unusual: 

1  See  p.  398. 


40S     ADMIXISTRATIOX  OF  INDUSTRIAL  ENTERPRISES 

''Lumber." 

"  Sash,  Doors  and  Blinds,  unglazed,  or  glazed  with  other  than 
plate,  leaded  or  stained  glass,  released;  Wooden  Eave  Troughs, 
Carpenter's  Mouldings,  Columns  (turned),  soUd  or  built  up  and 
combined  wood;  Cornice  Brackets,  Wainscoting,  Hand  Rails, 
Balusters,  and  similar  articles  for  inside  finishing,  manufac- 
tured of  kunber  other  than  Walnut,  Cherrv^,  Ebony,  Rosewood, 
^Mahogany,  Lignum  Vitae,  White  Holly,  and  Bird's  Eye  ]\Iaple, 
straight  or  mixed  carloads,  minimum  weight  26,000  pounds. 
Note.  —  Glazed  Sash  must  have  glazed  surface  protected  by 
boards  not  less  than  f  inch  in  thickness." 

In  general,  the  railroads  will  charge  the  highest  rate  which 
the  description  supphed  to  them  will  permit.  Any  package 
containing  articles  of  more  than  one  class  will  be  charged  at 
the  rate  of  the  highest  classed  article.  A  mLxed  carload,  as  a 
rule,  takes  not  only  the  highest  rate  of  any  article  in  it,  but 
exacts  the  highest  minimum  carload  weight  prescribed  for  any 
of  the  constituent  articles.  It  is  obvious  that  a  trafl&c  manager, 
who  is  famihar  with  bilUng  terminology-,  can  honesth^  describe 
his  shipments  in  making  out  the  bills  of  lading,  and  yet  secure 
transportation  at  rates  materially  lower  than  would  be  assessed 
if  the  designations  were  vague  and  general.  A  shipment  can 
often  be  di\'ided  to  advantage;  the  high-rate  articles  being 
packed  and  shipped  separately  from  those  which  take  a  lower 
rate.  Less  frequently,  there  is  economy  in  combining  diverse 
articles  in  one  shipment,  under  the  rules  for  assessing  mixed 
carloads. 

Size  of  shipments.  —  The  class  and  commodity  tariffs  all 
contain  specifications  as  to  the  minimum  weight  to  be  charged 
for  at  carload  rates.  These  weights  should,  of  course,  be  actually 
shipped  where  possible,  when  paid  for.  A  few  examples  of 
minimum  carload  weight  regulations,  chosen  from  Official 
classification  No.  36,  will  show  the  range: 

The  complete  utiUzation  of  car  spaces  sometimes  depends 
upon  the  forwarding  of  consignments  larger  than  a  carload. 


THE   TRAFFIC  DEPARTMENT  409 

Article  Minimum  Class 

carload 

weight         L.C.L.       C.L. 
in  lbs. 

Crepe  or  crinkled  paper  in  cases  10,000  1  2 

Bananas 18,000       1  and  IJ    3 

Farming  mills,  K.D.  flat 20,000  1  o  (R27V 

Acetic  acid,  in  carboys  boxed .  .  24,000  1  5 
Acetic    acid    in    bbls.    or    iron 

drums 36,000  3  5 

Ale  and  beer,  in  bottles  packed 

in  boxes  or  bbls 28,000  3  5 

Asphaltum,  solid,  in  cakes,  bags 

or  bbls 40,000  4  6 

Pig  iron,  chill 56,000  4  6 

The  Ford  ^lotor  Company  of  Detroit  can  ship  6  machines  in 
a  freight  car,  but  if  10  cars  are  being  loaded  at  one  time  for  a 
single  destination,  it  is  possible  by  a  rearrangement  of  packages 
to  send  100  machines. 

Packing.  —  The  nature  of  the  package  and  the  method  of 
packing  frequently  exert  a  decisive  influence  upon  the  rate 
charged.  A  spread  of  one  class,  and  sometimes  more,  separates 
shipments  set  up  or  knocked  down,  crated  or  boxed,  and  nested 
or  not  nested.  An  extract  from  the  classification  will  serve  to 
show  the  possiblities  of  economy: 

Article  Class 

L.C.L.  C.L. 

Children's  carts,  N.O.S.: 

Not  crated  or  boxed  L.C.L not  taken 

Minimum  weight  10,000  lbs. 

(subject  to  Rule  27) R  25 

^  Rule  27  makes  the  minimum  carload  weight  depend  upon  the  length 
of  the  car  used. 


410     ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

Crated  or  boxed 

S.U.  (set  up) 

Wheels  on 3  times  1st 

Wheels  off Double  1st 

K.D.   (knocked  down)  or  folded 
(not  flat) 

Wheels  on Double  1st 

Wheels  off li 

K.D.  flat 1 

Minimum  weight  10,000  lbs. 

(subject  to  Rule  27) R  25 

The  importance  of  containers  may  be  illustrated    by  the 
rating  of  one  article;  in  this  case  paint: 

Article  Class 

L.C.L.  C.L. 

Paint,  N.O.S.,  in  oil 

In  glass,  packed 1  3 

In  buckets  or  kits  (C.L.  minimum 

weight  36,000  lbs.) 3  5 

In  cans,  jacketed,  loose 1 

In  tins  cans  or  tin  pails,  loose Double  1 

In  sheet  iron  or  pressed  steel  cans  or 

pails,  loose  (C.L.  minimum  weight 

36,000  lbs.) 3  5 

In  tin  or  sheet  iron  cans  or  pails  in 

crates,  boxes  or  bbls.    (C.L.  min- 

inum  weight  36,000  lbs.) 3  5 

In  iron  drums  (not  cans)  (C.L.  min- 

unum  weight  36,000  lbs.) 4  5 

In  kegs,  half-bbls.,  or  bbls.  (C.L.  min- 

immn  weight  36,000  lbs.) 4  5 

It  is  estimated  that  freight  claims  amount  to  between  2  and 
3  per  cent  of  the  value  of  the  merchandise  transported  on  Ameri- 


I 


THE  TRAFFIC  DEPARTMENT  411 

can  railroads.  Of  this  great  sum,  damage  accounts  for  between 
60  and  70  per  cent.  The  chief  cause  of  damage  is  inadequate 
or  inappropriate  pacldng  and  packaging.  This  does  not  mean 
that  the  package  is  always  too  frail;  much  of  the  loss  is  due  to 
parts  being  left  loose  to  move  about  within  the  package.  When 
Ught  and  heavy  articles  are  put  in  the  same  package,  and 
loosely  packed  without  inside  bracing,  the  heavy  articles  tend 
to  perform  the  function  of  a  hammer,  upon  the  hghter  ones. 
Many  packages  are  made  so  large  and  heavy  as  to  constitute  a 
standing  challenge  to  the  freight  handler  to  enter  into  a  wrest- 
ling match  with  them. 

Any  time  which  is  saved  in  the  processes  of  packing  and  ship- 
ping has  the  effect  of  bringing  a  supplying  concern  as  much 
closer  to  its  customers  (in  terms  of  economic  distance)  as  ship- 
ments will  usually  advance  in  the  hands  of  carriers  in  an  equal 
length  of  time.  Efficiency  in  these  operations  serves,  therefore, 
to  add  to  the  tributary  territory  a  broad  belt  at  the  outer 
margin.  Every  hour  wasted  contracts  the  radius  of  profitable 
operations  from  12  to  20  miles:  every  hour  gained  lengthens 
this  radius  by  an  equal  distance. 

Trucking.  —  What  has  been  said  of  packing  applies  with 
equal  force  to  trucking.  Until  recently,  trucking  has  been  one 
of  the  most  inefficient  branches  of  transportation.  Presided 
over  by  the  itinerant  drayman,  it  has  been  slow,  destructive, 
and  unrehable.  This  situation  is  being  changed  by  the  intro- 
duction of  motor  trucks,  which  have  brought  into  the  field  the 
scientifically  trained  engineer.  As  to  the  economics  of  the 
motor  truck  versus  the  horse-drawn  vehicle,  it  may  be  said  that, 
since  the  motor  truck  has  a  greater  hourly  cost  than  the  team, 
but  also  a  greater  speed,  when  the  motor  is  standing  still  it 
incurs  a  greater  hourly  loss  than  the  idle  team,  but  when  the 
motor  is  in  motion  it  attains  a  lower  ton-mile  cost  than  the 
moving  team.  The  principle  of  economy  is  then  to  use  motors 
for  the  longer  runs  and  the  more  continuous  schedules,  and  to 
reduce  idle  time  to  a  minimum  by  adequate  apparatus  at  load- 


412     ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

ing  platforms,  and  by  the  application  of  motion  study  and  the 
rules  of  scheduling  to  all  work  which  holds  the  truck  in  waiting. 

The  securing  of  cars.  —  It  is  the  duty  of  the  traffic  depart- 
ment to  notify  the  railways  when  cars  are  needed  for  carload 
shipments,  and  to  do  this  sufficiently  in  advance  of  require- 
ments so  that  merchandise  will  not  be  delayed. 

The  traffic  officer  should  be  familiar  with  the  mileage  allow- 
ances made  by  the  railways  to  owners  of  private  cars,  so  that  he 
can  calculate  under  what  conditions  it  will  be  an  economy  for 
his  employer  to  purchase  rolling  stock.  It  may  be  said,  in  a 
general  way,  that  while  the  earnings  now  being  made  by  the 
owners  of  private  stock  and  tank  cars  are  not  excessive,  those 
of  the  owners  of  refrigerator  cars  are  very  high. 

Fast  freight  service.  —  The  traffic  department  should  be 
familiar  with  the  character  of  the  fast  freight  services  available 
on  the  railways  patronized.  Such  services,  variously  known 
as  ''fast,"  "time,"  ''preference,"  and  "manifest  "  freight,  or 
designated  by  some  arbitrary  title  such  as  "Red  Ball  "  (A.  T. 
and  St.  F.),  "Star  Union"  (Pa.  R.  R.),  or  "Merchants'  De- 
spatch" (N.  Y.  C.  Lines),  offer  through  service  at  an  average 
speed  of  about  20  miles  per  hour,  as  compared  with  the  12 
miles  of  the  ordinary  freight  train.  The  traffic  department 
should  know  the  schedules  of  such  trains,  the  receiving  and  dis- 
charging stations  served  by  them,  the  classes  of  freight  handled 
(especially  whether  or  not  package  freight  in  through  or  peddler 
cars  is  included) ,  and  should  be  f amiUar  with  any  special  bilhng 
procedure  which  may  be  required. 

Demurrage.  —  The  general  practice  of  the  railroads,  under 
the  national  car  demurrage  rules,  is  to  grant  48  hours  free  time 
in  which  to  load  or  unload  a  car,  and  24  hours  for  reconsign- 
ment,  holding  for  switching  orders,  stoppage  for  partial  un- 
loading in  transit,  inspection,  and  grading.  This  free  time  is 
adjusted  to  begin  approximately  one-half  day  after  the  car  is 
placed.  For  holding  a  car  beyond  this  time  a  charge  is  made  at 
the  rate  of  $1.00  per  day.    Free  time  may  be  extended  by  reason 


THE  TRAFFIC  DEPARTMENT  413 

of  Sunday's  and  holidays,  bad  weather,  delayed  or  improper 
notice,  or  other  errors  made  by  railway  employees.  There  are 
many  cases  of  car  delay  which  are  exempt  from  the  application 
of  demurrage  rules. 

When  a  shipper  handles  a  number  of  cars  in  a  month  he  may 
enter  into  an  averaging  agreement  with  the  local  demurrage 
bureau.  The  rule  of  averaging  is  as  follows:  ''A  credit  of  one 
day  will  be  allowed  for  each  car  released  within  the  first  twenty- 
four  hours  of  free  time.  A  debit  of  one  day  will  be  charged 
for  each  twenty-four  hours  or  fraction  thereof  that  a  car  is 
detained  bej-ond  the  first  forty-eight  hours  of  free  time.  In  no 
case  shall  more  than  one  day's  credit  be  allowed  on  any  one  car, 
and  in  no  case  shall  more  than  seven  days'  credits  be  applied 
in  cancellation  of  debits  accruing  on  any  one  car."  In  most 
of  the  Southern  states  and  the  states  lying  between  the  Mis- 
sissippi River  and  the  Rocky  Mountains,  demurrage  rules  have 
been  established  by  state  law.  These  laws  as  a  rule  establish 
reciprocal  demurrage,  and  lengthen  the  period  of  free  time. 
Under  reciprocal  demurrage  the  railroads  are  assessed  for 
delay  in  furnishing  cars  or  in  moving  them,  at  the  same  rate 
that  the  shipper  is  assessed  for  holding  cars. 

RebiUing,  reconsignment,  and  stoppage  in  transitu.  —  One 
of  the  functions  of  forwarding  agents  and  transfer  houses  is 
to  receive  freight  in  carloads  from  their  principals,  place  it  in 
storage,  and  ship  it  as  instructed  in  L.C.L.  lots  to  designated 
consignees.  By  employing  such  agents  a  shipper  can  place 
reserve  stocks  in  market  centres,  situated  conveniently  to  groups 
of  customers;  and  can  secure  the  economy  of  carload  rates 
part  way  to  destination,  without  incurring  the  full  expense  of 
maintaining  a  system  of  individually  owned  branch  agencies. 

A  shipment  can  be  consigned  to  a  certain  point  and  later  re- 
consigned  to  a  point  short  of  or  beyond  the  original  destination, 
providing  instructions  are  given  to  the  railway  before  the  ship- 
ment has  passed  the  last  freight-distributing  centre  at  which 
change  of  destination  can  be  made.    If  the  intermediate  desti- 


4U     ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

nation  points  of  a  series  of  consignments  applying  to  one  ship- 
ment are  on  the  direct  route  to  the  ultimate  destination,  the 
railroads  will  aUow  the  through  rate  to  apply,  plus  a  charge  for 
reconsignment. 

Goods  shipped  to  a  buyer  on  a  straight  bill  of  lading,  when 
freight  is  not  prepaid,  are,  in  general,  held  to  be  the  property 
of  the  consignee,  while  in  the  hands  of  the  carrier.  If,  however, 
goods  are  being  shipped  from  a  seller  to  a  buyer  on  credit,  and 
during  the  progress  of  the  shipment,  or  while  the  goods  are 
still  in  the  possession  of  the  railway  at  the  consignee's  station, 
it  is  discovered  that  the  buyer  is  a  bankrupt,  the  seller  has  the 
right  to  order  the  carrier  not  to  make  deUverv',  but  to  hold  the 
merchandise  subject  to  his  orders.  This  is  called  the  right  of 
stoppage  in  transitu. 

Freight  claims.  —  The  railways  are  liable  for  loss,  damage, 
wrong  dehverv',  delay,  and  overcharge,  together  with  interest 
on  the  sums  involved.  The  responsibihty  is  limited  to  direct 
losses;  that  is  to  say,  if  the  paper  of  a  daily  newspaper  were 
lost,  the  responsibihty  of  the  carrier  would  be  for  the  value  of 
the  paper,  and  not  for  the  indirect  and  consequential  injury 
which  might  result  from  suspension  of  pubhcation.  Delay 
beyond  a  reasonable  time  involves  responsibihty  where  there  is 
a  discrepancy  between  the  market  value  of  the  goods  at  the 
time  actually  received  and  the  value  at  the  time  they  should 
have  been  received.  The  responsible  railway  is  the  one  issuing 
the  bill  of  lading.  Liabihty  is  to  the  consignee  in  the  case  of  a 
straight  bill  of  lading;  to  the  consignor,  or  person  to  whom  he 
endorses,  in  the  case  of  an  order  bill  of  lading. 

When  damaged  or  short  shipments  are  received,  the  proper 
procedure  is  to  accept  the  freight,  upon  the  proper  notation 
being  made  by  the  freight  agent  upon  the  receipted  bill,  and 
then  to  file  claim.  In  case  of  concealed  damage  or  loss,  notice 
should  be  given  to  the  agent  in  writing  at  the  earhest  possible 
moment,  and  an  opportunity'  offered  him  to  make  inspection. 
Claims  for  shortage  often  involve  the  meaning  of  the  endorse- 


THE  TRAFFIC  DEPARTMENT  415 

ment  ''shipper's  load  and  count"  on  the  bill  of  lading.  The  use 
of  this  phrase  does  not  constitute  a  waiver  of  the  shipper's  right 
to  recover  for  shortage,  but  it  does  lay  upon  him  the  burden  of 
proof  that  the  quantities  claimed  were  actually  dehvered  to 
the  railway.  In  such  a  case  a  set  of  business-like  records  made 
by  the  packers,  checkers  and  drajonen  is  of  great  assistance. 

The  general  improvement  of  railway  service.  —  The  traffic 
men  of  a  branch  of  industr}^,  or  of  a  localit}^,  can  exert  consid- 
erable influence  in  the  direction  of  improving  railway  service, 
particularly  if  they  are  organized.  In  Cleveland,  a  section  of 
the  Chamber  of  Commerce  serves  to  bring  railroad  officials 
and  industrial  traffic  men  together,  and  to  create  an  atmosphere 
of  friendhness  and  reasonableness  between  them.  There  has 
been  estabhshed,  through  its  efforts,  a  system  of  reporting 
delayed  shipments  wliich  has  spread  among  the  railway  agents 
of  a  considerable  area  of  country  the  idea  that  if  Cleveland 
freight  is  delayed  without  good  excuse  the  matter  is  heard  from. 
In  St.  Louis  the  Freight  Bureau  of  the  Business  Men's  League 
handles  complaints  for  the  members  of  the  League.  It  also 
compiles  a  handbook  of  outgoing  package  car  service,  which 
enables  a  shipper  to  discover  at  once  to  what  points  there  is 
special  service,  and  at  what  hours  the  various  cars  are  moved. 
The  Bureau  prepares  a  monthty  statement  of  the  times  actually 
taken  by  these  cars  in  reaching  destination.  This  pubhcity 
sharpens  the  ambition  of  the  railways  to  maintain  their  pub- 
fished  schedules;  and  it  enables  shippers  to  guarantee  delivery 
dates  so  closely  that  their  retail  customers  are  encouraged  to 
practise  the  system  of  placing  fight  and  frequent  orders. 

BIBLIOGRAPHY 

Johnson,  E.  R.,  and  Huebner,  G.  G.:  Railroad  Traffic  and  Rates,  N.  Y., 

1911.     2  vols. 
Ripley,  W.  Z.:   Railroads:   Rates  and  Regulation,  X.  Y.,  1913. 
McPherson,  L.  G.:    Railroad  Freight  Rates  in  Relation  to  the  Industry 

and  Commerce  of  the  United  States,  N.  Y.,  1909. 


416     ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

Strombeck,  J.  F.:  Freight  Classification:  A  Study  in  Underljing  Prin- 
ciples, Boston,  1912. 

Hammond,  M.  B.:  Ptailway  Rate  Theories  of  the  Interstate  Commerce 
Conmiission,  Quart.  Journ.  of  Econ.,  Nov.  1910,  Feb.  and  May 
1911,  Vol.  29,  pp.  1-66,  279-336,  471-538. 

Deiser,  Geo.  F.,  and  Johnson,  F.  W.:  Claims,  Fixing  Their  Values,  N.  Y., 
1911. 

Publications  of  The  Freight  Claim  Association,  The  National  Industrial 
Traffic  League,  and  The  Railway  Business  Association. 


CHAPTER  XXI 
CREDIT  AND   COLLECTION 

Credit 

Commercial  credit  is  the  sale  of  merchandise  on  the  promise 
of  future  pa^^Bent.  It  rests  upon  confidence  in  the  ability  and 
disposition  of  the  debtor  to  fulfil  his  obhgations.  To  give  to 
another  person  credit  means  to  make  a  short-time  investment 
in  his  business;  to  stake  one's  money  on  the  location  and 
methods  and  talent  of  a  particular  firm,  as  over  against  com- 
petitors. Credit  permits  men  who  have  more  property  than 
opportunity  to  aid  those  who  have  more  opportunity  than 
property.  It  is  one  of  the  great  agencies  for  the  more  general 
distribution  of  economic  power.  Credit  is  a  creator  of  oppor- 
tunity, ''it  opens  the  careers  to  the  talents,"  as  Napoleon's 
merit  system  did.  To  give  credit  with  care  means  to  encourage 
honest  and  capable  men  as  proprietors  of  business,  and  to  dis- 
courage those  who  are  dishonest  or  incapable;  it  is  to  be  on  the 
still  hunt  for  men  with  the  talent  to  use,  conserve,  and  increase 
propert3^  It  means  to  encourage  well-conceived  and  soundly 
managed  enterprises,  and  to  aid  in  the  ehmination  of  the 
opposite  sort.  To  refuse  credit  when  it  should  be  refused  is 
not  an  act  of  ilhberality;  it  is  the  necessary  correlative  of  an 
act  of  discriminating  hberahty  which  will  help  forward  some 
worthy  man. 

From  the  Doint  of  view  of  mercantile  credit,  the  ideal  credit- 
giving  institution  is  not  a  bank  but  a  business  in  the  same 
general  fine  of  industr}^  as  the  businesses  to  which  advances 
are  made,  and  prior  to  them  in  the  chain  of  commodity  distri- 

417 


418     ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

bution.  In  such  a  business  every  aspect  of  the  affairs  having 
to  do  with  the  sale  of  goods  will  contribute  knowledge  useful 
in  administering  the  credits.  Furthermore,  the  credit-giving 
institution  should  be  large  enough  to  average  risks. 

Administrative  relations.  —  In  a  business  of  sufficient  size 
to  bear  the  elaboration,  the  credit  man  should  be  independent 
of  the  selling  department,  and  coordinate  in  authority  with  the 
sales  manager.  The  separation  of  functions  involved  in  such 
an  arrangement  is  desirable  because  the  handHng  of  credits 
and  the  making  of  collections  is  a  matter  distinct  in  point  of 
view,  in  principles,  and  in  technique,  from  the  making  of  sales. 
The  administrative  independence  thus  attained  for  the  credit 
department  will  create  within  a  business  an  influence  which 
has  to  do  with  the  marketing  process,  but  which  is  able  to  correct 
the  extravagancies  into  which  the  optimism  and  push  of  the 
selhng  temperament  occasionally  lead. 

In  businesses  so  small  that  there  is  not  enough  work  to  occupy 
a  man  entirely,  it  is  not  unusual  to  put  the  credit  man  in  charge 
of  accounts,  and  even  to  give  him  the  duties  of  cashier  and 
treasurer.  In  behalf  of  such  a  combination  of  functions  it  may 
be  said  that  the  relation  between  accounts  and  credits  is  close. 
Most  credit  men  are  graduates  of  the  accounting  department. 
It  seems  reasonable  that  the  man  who  is  applying  tests  to  dis- 
cover the  soundness  of  other  businesses,  and  who  is  constantly 
thinking  of  such  matters  as  the  apportionment  of  capital  to 
different  uses,  and  the  adequacy  of  accounting  s^^stems  and 
balance  sheets,  should  be  made  the  watchdog  of  the  treasury 
of  his  own  concern. 

The  general  credit  policy.  —  The  policy  used  in  extending 
credit  and  in  making  collections  should  be  harmonized  with 
the  remaining  body  of  policy  of  the  business  establishment.  An 
enterprise  with  small  capital  will  aim  at  rapid  circulation  of 
its  assets  by  offering  liberal  discounts  for  cash,  by  energetic 
treatment  of  slow  accounts,  and  by  accepting  notes  which  can 
be  used  as  collateral  for  loans.     An  industry  with  a  marked 


CREDIT  AND  COLLECTION  419 

seasonal  irregularity  will  be  inclined  to  develop  the  practice  of 
giving  long  terms,  to  induce  advance  ordering,  while  yet  obH- 
gating  customers  to  pay  their  bills  as  they  reahze  upon  their 
stocks.  An  establishment  in  an  out-of-the-way  location  will 
see  that  it  can  devise  easy  terms  for  distant  territory,  and  so 
practise  market  equahzation  by  means  of  credit  as  well  as  by 
absorbing  excess  freight  charges.  A  national  advertiser  may 
find  it  profitable  to  make  a  special  concession  to  the  initial  dealer 
in  each  locality,  for  the  sake  of  obtaining  numerous  outlets 
through  which  to  ^'cash  in  "  the  good-will  created  by  his  adver- 
tising. A  new  firm  may  attempt  to  neutraUze  the  advantage 
of  older  rivals  by  financing  dealers  more  scientifically,  and  with 
a  more  intimate  and  helpful  credit  service,  than  its  competitors 
have  done.  A  new  firm  will  seek  to  grow  with  rapidly  growing 
territory,  by  distributing  its  credit  favors  in  young  neighbor- 
hoods, and  with  new  firms. 

Datings.  —  The  technique  of  payment  involves  such  matters 
as  datings,  interest  calculations,  and  the  medium  of  payment. 
A  dating  is  an  adjustment  of  the  date  of  a  bill  so  that  an  account 
will  fall  due  some  time  after  the  merchandise  covered  by  it 
has  been  dehvered,  and  will  permit  the  taking  of  the  cash  dis- 
count at  a  correspondingly  postponed  date.  The  force  which 
more  than  any  other  tends  to  lengthen  credit  terms  unduly  — • 
competition  aside  —  is  the  seasonal  irregularity  of  trade.  This 
irregularity  accounts  for  the  long  terms  of  agricultural  credits. 
And  it  accounts  also  for  the  long  terms  which  sometimes  pre- 
vail between  manufacturers  and  their  wholesale  distributors, 
and  between  wholesalers  and  their  retail  customers,  where  there 
is  in  use  a  system  of  ordering  merchandise  in  advance  of  seasonal 
demand. 

Discounts.  —  The  interest  calculations  involved  in  pay- 
ment have  to  do  with  discounts  offered  for  anticipation,  or  for 
prompt  payment,  and  with  the  interest  charge  exacted  as  a 
penalty  for  delay.  The  majority  of  the  concerns  which  sell  to 
dealers  allow  a  discount  for  payment  within  a  few  days  after 


420     ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

the  date  of  the  bill.  The  most  frequently  employed  terms  are 
probably  ''2-10-30-6,"  which  mean  2  per  cent  discount  for 
cash  in  ten  days,  and  interest  at  6  per  cent  after  30  days. 
Prices  stated  in  terms  of  time,  under  such  an  arrangement, 
are  as  follows: 

Time  Price 

0  to  10  days,  incl Net,  or  2  per  cent  less  than  the  face  of 

the  bill. 

11  to  30  da3"s,  incl Face  of  the  bill. 

31  days  and  over Face,  plus  interest  at  the  rate  of  6  per 

cent  per  annum. 

The  allowance  for  payment  in  10  days  is  at  the  rate  of  73  per 
cent  per  annum:  a  rate  which  stands  in  marked  contrast  to 
the  6  per  cent  per  annum  designated  for  the  overdue  account. 
The  rate  of  the  cash  discount  cannot  be  justified,  therefore,  as 
interest  for  the  use  of  the  money  for  the  period.  Credit-giving 
concerns  are  able  to  borrow  money  at  a  fraction  of  this  rate; 
and  the  debtor  business  which  is  sound  and  well  managed  can 
borrow  money  with  profit  to  discount  its  bills.  The  high  rate 
of  discounts  is  intended  to  stimulate  debtors  to  prompt  action, 
and  so  prevent  accounts  from  slipping  into  that  ''old  "  stage 
where  they  are  hard  to  pay.  In  so  far  as  the  psychology  of  debt 
paying  is  concerned,  obligations  are  easiest  met  when  incurred, 
for  at  that  time  the  sense  of  contract  obhgation  is  strongest, 
and  the  value  of  the  merchandise  received  is  most  vividly 
reaUzed.  At  that  time,  also,  the  inflation  of  assets  caused  by 
the  receipt  of  new  units  of  capital  in  the  form  of  goods  has  not 
yet  exerted  a  palpable  influence  toward  affluent  methods  of 
finance,  from  which  it  is  hard  to  return  to  the  more  cramped 
calculations  of  doing  business  on  one's  own  capital.  When  the 
cash  discount  sj^stem  is  used,  normal  prices  are  the  net  prices 
and  the  discount  is  an  extra  charge  made  to  those  who  are 
slow :  a  charge  intended  to  compensate  for  the  extra  hazard  and 
the  collection-department  expense  their  accounts  involve.    By 


CREDIT  AND  COLLECTION  421 

making  this  fine  for  slowness  a  heavy  one,  the  cash-discount 
system  serves  as  a  convenient  touchstone  of  debtors,  classi- 
fying them  sharply  into  two  groups,  those  who  are  standard 
and  competent,  and  those  who  are  sub-standard  and  who 
require  a  careful  and  costly  nursing  process. 

Payment  in  securities.  — But  one  point  requires  mention 
with  reference  to  the  medium  of  payment.  It  is  not  unusual  for 
the  manufacturers  of  building  materials  or  machinery  used  as 
equipment  by  other  corporations  to  be  approached  with  the 
proposition  to  take  in  payment  the  stocks  or  bonds  of  the  buy- 
ing corporation.  If  such  a  supplier  has  an  alliance  with  a 
financial  house  which  is  in  the  business  of  underwriting,  and  of 
distributing  securities,  the  task  of  examining  into  the  merits 
of  such  propositions  can  be  turned  over  to  experts,  while  in 
case  the  securities  are  finally  accepted,  there  will  be  at  hand  the 
organization  for  marketing  them  with  the  investing  public. 
Such  a  combination  between  manufacturing  and  underwriting 
exists  in  the  case  of  engineering  promoters.^ 

Credit  information.  —  Credit  rests,  as  has  been  said,  upon 
the  debtor's  ability  and  disposition  to  fulfil  his  financial  obli- 
gations. It  has  to  do,  therefore,  with  character  and  with  busi- 
ness conditions.  Two  things  are  to  be  judged:  a  man  and  his 
business.  The  judgment  of  both  will  involve  the  consideration 
of  the  prevailing  state  of  business  of  the  region  and  of  the 
country. 

The  personality  of  the  applicant  for  credit  involves  an  inquiry 
into  such  matters  as  health,  age,  training,  talent,  application, 
economy,  and  fitness  for  the  particular  enterprise  concerned. 
One-fourth  of  the  failures  are  due  to  incompetence.  It  involves, 
also,  the  question  of  honesty  —  over  one-tenth  of  the  failures 
are  due  to  fraud.  The  chief  function  of  the  credit  manager  is 
to  hazard  the  property  of  his  firm  with  the  right  man.  It  is 
easy  to  pick  the  present  leaders  of  industry :  the  fine  art  of  char- 
acter analysis  is  only  shown  in  discovering  talent  which  is  yet 
1  See  further  Chapter  II,  pp.  25-26. 


422     ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

in  embryo,  and  in  choosing  those  who  will  be  the  leaders  of 
tomorrow.  The  liighest  compliment  which  can  be  paid  to  a 
credit  manager  is  to  have  many  successful  men  say  of  him, 
''He  helped  me  when  I  needed  help."  Such  a  manager  has 
cast  his  bread  upon  the  waters  to  good  purpose. 

To  judge  the  general  conditions  of  business  which  effect 
credit  advances  is  not  only  to  determine  in  what  phase  of  the 
trade  cycle  the  country  is  at  any  time,  and  decide  what  the 
next  phase  is  hkely  to  be,  but  it  is  to  review  the  prospects  of  a 
particular  branch  of  industry,  and  to  estimate  the  conditions 
which  determine  the  prosperity  of  a  locality.  Some  industries 
are  in  a  state  of  speculative  overdevelopment;  others  are 
involved  in  a  general  process  of  integration  into  large  units 
which  will  crush  out  many  small  estabhshments;  still  others 
are  being  rendered  obsolete  by  mechanical  invention  and  the 
evolution  of  new  methods  of  mercantile  distribution.  Some 
localities  are  cursed  by  non-periodic  chmatic  changes  which 
bring  years  of  crop  failure;  others  are  single-line  manufactur- 
ing districts,  liable  to  be  paralyzed  by  strikes,  or  to  fall  suddenly 
from  prosperity  into  depression;  still  others  are  dependent 
upon  a  business  of  wasting  assets,  Hke  lumbering  or  mining, 
which  will  eventually  work  out  the  local  suppUes  and  move 
elsewhere. 

In  rei-iewing  the  affairs  of  the  individual  debtor  firm,  the 
credit  man  is  interested  to  learn  the  amount  of  assets,  the 
character  or  distribution  of  the  assets,  the  rate  of  turn-over  or 
the  intensity  of  the  use  of  the  capital,  and  the  cost  of  doing 
business  or  the  efficiency  of  this  use.  The  total  amount  of  the 
assets  determines  the  safe  limit  of  total  advances  from  all  credi- 
tors, for  the  proprietor's  contribution  is  in  the  nature  of  a 
margin  of  safety.  ''On  the  supposition,"  says  P.  R.  Earling, 
"justified  by  experience,  that  the  assets  of  a  mercantile  firm, 
in  the  event  of  foreclosure  or  assignee's  sale,  do  not  brmg  over 
65  per  cent,  the  limit  of  credit,  to  insure  us  dollar  for  dollar, 
must  be  fixed  at  65  per  cent  of  the  inventory  value  of  the  assets. 


CREDIT  AND  COLLECTION  423 

If  we  start  with  $10,000  of  assets,  this  would  pay  liabilities  of 
$6,500,  and  this  amount  must  be  established  as  the  limit,  and 
in  all  cases  this  relative  proportion  should  be  maintained. 
The  shrinkage  of  35  per  cent  represents  the  capital  invested, 
but  creditors  are  paid  in  full,  and  this  is  as  it  should  be.  The 
man  who  embarks  in  business  is  supposed  to  risk  his  capital, 
and  not  ours,  in  the  enterprise;  and  in  case  of  loss  or  failure, 
we,  as  prudent  business  men,  should  look  to  it  that  there  is 
sufficient  margin  represented  by  capital  to  provide  for  emer- 
gencies.^' ^ 

The  most  widespread  and  inveterate  mistake  made  in  handling 
assets  is  to  fix  too  large  a  proportion  of  them  in  forms  from  which 
cash  cannot  be  secured  quickly  without  excessive  loss.  When 
the  sales  and  expenses  of  a  business  can  be  compared  with  the 
total  credit  advances  made  to  it,  the  proper  term  of  the  credits 
can  be  calculated.  If  a  firm  makes  annual  sales  of  $100,000 
with  expense  of  $20,000,  and  so  has  a  sum  of  $80,000  applicable 
to  debts,  the  payment  of  claims  should  proceed  at  the  rate  of 
$222.22  per  day,  if  the  entire  amount  is  applied.  If  the  debts 
average  $25,000  this  would  mean  that,  where  an  even  rotation 
was  observed,  any  particular  account  should  be  paid  in  112 
days.  If  then  an  account  stands  longer,  the  delay  suggests  that 
there  is  either  favoritism,  increase  of  indebtedness,  or  diversion 
of  funds. 

Exemptions.  —  In  scrutinizing  the  property  of  a  customer 
with  reference  to  its  value  as  a  margin  of  safety  for  credit 
advances,  it  must  be  remembered  by  the  credit  officer  that  the 
law  does  not  consider  it  good  policy  to  permit  a  debtor  to  be 
entirely  stripped  of  his  possessions  and  thereby  handicapped 
in  his  efforts  to  earn  a  livelihood  for  himself  and  his  dependents. 
Exemptions  of  personal  property,  including  wearing  apparel, 
tools  of  the  trade,  work  animals,  and  household  furniture, 
range  under  state  laws  from  $300  to  $500  in  value.  The  home- 
stead exemption  of  home  or  farmstead  covers  values  ranging  in 
1  Whom  to  Trust,  Cliicago,  1890. 


424     ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 


PROPERTY  STATEMENT   BLANK 

Recommended  and  endorsed  by  the  National  Association  of  Credit  Men 

To Date 19 

For  the  purpose  of  obtaining  credit  now  and  hereafter  for  goods 
purchased,  I  or  we  herewith  submit  to  you  the  following  statement 
of  my  or  our  resources  and  liabilities,  and  I  or  we  will  immediately 
notify  you  of  any  material  change  in  my  or  our  financial  condition. 
In  consideration  of  your  granting  credit  to  the  undersigned  I  or  we 
agree  that  in  case  of  my  or  our  failure  or  insolvency,  or  in  case  I  or 
we  shaU  make  any  assignment  for  the  benefit  of  creditors,  bill  of  sale, 
mortgage  or  other  transfer  of  my  or  our  property,  or  shall  have  my 
or  our  stock  attached,  receiver  appointed,  or  should  any  judgment  be 
entered  against  me  or  us,  then  all  and  every  of  the  claims  which  you 
may  have  against  me  or  us  shall  at  your  option  become  immediately 
due  and  payable,  even  though  the  term  of  credit  has  not  expired.    Al 
goods  hereafter  purchased  from  you  shall  be  taken  to  be  purchased 
subject  to  the  foregoing  conditions  as  a  part  of  the  terms  of  sale. 

Active  Business  Assets 
Value  of  merchandise  on  hand  at 

cost                             

Dollars 

Cents 

Notes  and  accounts,  cash  value 

Cash  in  hand              

Cash  in  bank                          

Fixtures,  machinery,  horses  and 
wagons                      

Total  Active  Business  Assets .  . 

i 

Business  Liabilities 

Owe  for  merchandise,  open  acct., 
nf  whir^h  %               is  nast  due        .  . 

Dollars 

Cents 

Owp  fnr  nntps  for  merchandise 

Owe  bank                                        

O'w^p  r»thpr«?  fnr  bnrrnwpH  monev. 

O'w^p  taYPs  and  rent                            .  . 

>  ■  .  » 

Mortgages  on  fixtures,  machinery, 
horses  and  wagons 

•  •  •  1 

CREDIT  AND  COLLECTION 


425 


Total  Business  Liabilities  .  .  . 


Net  Worth  in  Business 


Outside  Assets 

Total  real  estate,  assessed  valua- 
tion, $ 

Total  encumbrances  on  real  es- 
tate, % 

Equity 

Personal  property 

Other  assets 

Grand  Total  net  worth  in  and 
out  of  Business 


Full  given  and  surname  of 
each  partner 

Age? 

Married? 

Possible  liability  of  each 

member  of  firm  as  endorser, 

bondsman.etc. 

What  portion  of  Real  Estate  described  is  homestead?, 
Have  you  any  other  debts  than  herein  mentioned? .  .  . 

What  kind  of  business  do  you  conduct? 

Insurance  on  Stock? 

On  Fixtures,  Machinery,  Horses  and  Wagons? 

On  Real  Estate? 

Amount  of  sales  last  year? 

Amount  of  expenses  last  year? 

What  proportion  of  your  sales  is  on  credit? 

How  often  do  you  take  an  inventory  of  stock? 


426     ADMIXISTRATION  OF  INDUSTRIAL  ENTERPRISES 


Date  of  last  inventory?    

If  3'ou  have  borrowed  money  in  the  business,  state  what  amount 
is  secured  and  in  what  way? 

Are  any  merchandise  creditors  secured  in  any  way? 

Have  you  any  judgments,  judgment  notes,  chattel  mortgages,  or 
other  liens  against  you,  recorded  or  unrecorded?    If  so,  describe 


Suits  pending,  and  of  what  nature?  .  . 

Keep  bank  account  with 

What  books  of  account  do  you  keep? 


If  you  have  pledged  or  transferred  outstanding  accounts  or  property 
remaining  under  your  control,  state  amount  thereof  and  amount 
received,  or  to  be  received,  on  account  of  such  pledge  or  transfer. 

The  above  statement,  both  printed  and  written,  has  been  care- 
fully read  by  the  undersigned  and  is  a  full  and  correct  statement  of 

my  or  our  financial  condition  as  of 19 ...  . 

Finn  Signature 

By a  member  of  the  firm. 

Town State 

On  the  reverse  side  of  this  sheet  is  given  a  fist  of  houses  I  or  we 
deal  with. 


CREDIT  AND  COLLECTION  427 

the  different  states  from  $100  to  $1,500,  although  in  a  few  states 
it  amounts  from  $2,500  to  $5,000.  The  homestead  right  is 
sometimes  stated  in  terms  of  acres.  The  income  exemptions, 
applying  to  wages  and  salaries,  usually  range  between  $30  and 
$60  per  month. 

Sources  of  information.  —  The  ideal  source  of  information 
on  which  to  base  a  credit  advance  is  the  debtor's  own  state- 
ment. The  ideal  statement  is  one  including  a  signed  schedule 
of  assets  and  liabilities.  To  assist  the  applicant  for  credit  in 
preparing  an  acceptable  statement,  a  property  report  blank 
has  been  published  by  the  National  Association  of  Credit  Men. 

Apphcants  for  credit  are  sometimes  loth  to  give  complete 
information  as  to  their  affairs.  On  this  point  the  National  Asso- 
ciation of  Credit  Men  says,  ''The  giver  of  credit  is  a  contributor 
of  capital,  and  becomes,  in  a  certain  sense,  a  partner  of  the 
debtor,  and  as  such  has  a  perfect  right  to  complete  information 
of  the  debtor's  condition  at  all  times."  False  pride  should  not 
be  a  bar  to  the  giving  of  a  statement,  for  it  may  be  assumed 
that  those  who  ask  for  credit  need  it,  and  that  therefore  the 
balance  sheets  they  present  will  not  show  ideal  financial  condi- 
tions. Honest  persons  should  welcome  a  chance  to  put  them- 
selves upon  a  basis  which  those  who  have  much  to  hide  cannot 
attain.  Those  who  are  ambitious  to  rise  should  realize  that  it  is 
profitable  to  establish  confidence  in  the  minds  of  those  who 
have  the  means  to  aid  them.  There  is  every  reason  why  the 
relations  between  a  credit  man  and  the  customers  of  his  firm 
should  be  a  close  and  candid  one.  The  business  interests 
involved  are  in  natural  accord,  since  a  credit-extending  house 
can  only  prosper  through  the  prosperity  of  its  customers. 
Furthermore,  the  credit  man  is  the  best  financial  doctor  most 
business  men  ever  have  the  privilege  of  coming  into  close  touch 
with. 

A  complete  financial  statement  is  especially  desirable  from 
those  who  are  placing  a  first  order,  from  such  as  have  no  credit 
rating  with  a  mercantile  agency,  or  who  claim  that  their  rating 


428     ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

is  unjust  or  out  of  date,  from  customers  who  desire  to  place  a 
new  order  before  an  old  one  is  paid  for,  and  from  those  who  are 
asking  for  an  extension  of  time. 

The  most  comprehensive  source  of  information  available  to 
the  credit  man,  and  the  one  next  in  quality  to  customers'  own 
statements,  is  the  ratings  and  reports  of  the  mercantile  agencies. 
Salesmen's  reports  are  to  be  utiHzed  chiefly  as  a  supplement  to 
customers'  statements,  and  as  a  running  fire  of  current  comment 
to  keep  the  credit  histories  in  the  credit  department  revised  to 
date.  Bank  reports  are  reliable  but  reticent:  bank  officials  do 
not  desire  to  perform  the  work  of  mercantile  agencies.  Other 
sources  of  information  are  the  reports  of  organizations  of  local 
credit  men,  commonly  known  as  credit  clearing  houses;  the 
reports  of  the  credit  bureaus  of  national  trade  associations, 
and  the  interchange  of  information  which  takes  place,  by 
courtesy,  between  the  credit  departments  of  different  houses. 

The  credit  office. —  The  office  system  of  the  credit  department 
is  directed  to  the  systematic  recording  of  items  of  information 
bearing  upon  the  credit  standing  of  customers,  and  to  the 
rapid  review  of  the  purchase  orders  received,  in  the  light  of  this 
information.  The  office  procedure  should  be  designed  to  bring 
customers'  accounts  to  the  attention  of  the  credit  man  as  in- 
fallibly as  possible  upon  the  occurrence  of  certain  designated 
junctures  which  are  deemed  dangerous.  Such  junctures  may 
be: 

(a)  account  overdue, 

(5)  line  of  credit  used  up, 

(c)  rapid  increase  in  orders  above  previous  average, 

{d)  an  unusually  large  order  placed  by  a  slow-paying  cus- 
tomer, who  has  recently  been  paying  very  promptly, 

(e)  an  unjust  claim  —  as  of  shortage  or  damage  —  when  the 
circumstances  are  not  convincing;  especially  a  repetition  of 
such  claims, 

(/)  fire  under  suspicious  circumstances;  especially  a  second 
fire, 


CREDIT  AND  COLLECTION  429 

{g)  refusal  to  honor  draft, 

(/i)  refusal  to  furnish  financial  statement, 

(i)  report  of  unfavorable  items  of  legal  record. 

Collections 

When  an  account  falls  due  it  becomes  not  only  a  credit  but  a 
collection  as  well.  The  process  of  collection  is  one  of  the  most 
difficult  of  business  negotiations,  for  wliile  it  requires  the  appli- 
cation of  pressure  to  induce  debtors  to  perform  an  unwelcome 
act,  the  means  used  must  usually  be  confined  within  hmits 
which  preserve  the  business  connections.  Tact  must  be  blended 
with  firmness;  but  since  these  two  principles  of  conduct  tend  to 
fly  toward  opposite  extremes  —  tact  toward  obsequiousness, 
and  firmness  toward  harshness  —  the  most  difficult  virtue  to 
achieve  in  a  credit  department  is  the  blending  of  the  two. 

The  stages  of  a  collection.  —  The  history  of  a  collection  may 
be  represented  as  a  series  of  steps: 

1.  A  statement  should  be  presented  at  maturity.  It  is  cus- 
tomary among  many  classes  of  merchants  to  collect  individual 
items  into  monthly  statements;  manufacturers,  on  the  other 
hand,  generally  present  each  invoice  as  a  separate  bill.  If  bills 
are  sent  out  promptly  the  impression  is  created  that  a  house 
interprets  its  selling  terms  strictly,  and  expects  business-like 
treatment  at  the  hands  of  its  customers.  Promptness  is  every- 
where interpreted  as  evidence  of  decision  of  character;  it  tends 
to  promote  respect  and  an  attitude  of  compliance.  It  is  not 
wise  to  enclose  advertising  matter  with  statements,  since  to  do 
so  is  to  attract  attention  from  the  main  purpose  of  the  com- 
munication. 

2.  A  statement  disregarded  should  be  promptly  followed  by 
a  firm  and  candid  follow-up.  Promptness  not  only  avoids  a 
portion  of  the  labor  of  watching  accounts,  and  saves  the  interest 
and  business  profit  of  the  funds  otherwise  locked  up,  but  it 
allows  less  time  for  unfavorable  changes  to  occur  in  the  debtor's 
affairs.    It  is  a  mistaken  analysis  to  assume  that  a  customer's 


430     ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

patronage  is  held  by  letting  an  old  debt  drag.  Debtors  who 
feel  that  they  have  overtaxed  a  creditor's  generosity  avoid 
contact,  fearing  a  dun.  They  are  more  comfortable  with  a  new 
concern  where  their  credit  is  temporarily  better.  Debts  long 
postponed  are  notoriously  hard  to  pay.  During  the  delay  the 
debtor  enjoys  the  use  of  the  property  of  another,  and  this  false 
situation  gradually  breaks  down  his  value  sense.  The  longer 
he  remains  in  this  comfortable  state,  the  more  disagreeable, 
and  finally  even  unfair,  it  seems  to  him  to  be  obhged  to  change. 
''Time  adds  frightfully  to  the  risk  of  the  deal  from  the  credit 
point  of  view,"  says  The  Studebaker  Brothers  Manufacturing 
Compan}^,  in  its  instructions  to  its  salesmen.  ''A  dealer  with 
limited  responsibility  is  a  better  risk  for  reasonable  credit  on 
short  time  than  a  dealer  with  twice  his  means  on  long  time." 

3.  The  use  of  a  sight  draft  is  a  recognized  process  of  collect- 
ing, and  one  which  should  give  no  offense,  provided  it  is  known 
that  a  house  makes  a  practice  of  using  it  regularly.  To  estab- 
lish the  practice  as  standard,  some  firms  insert  a  printed  notice 
in  their  statements  to  the  effect  that  delay  in  payment  is  under- 
stood to  mean  that  they  should  draw.  A  draft  should  prefer- 
ably be  presented  through  the  bank  with  which  the  customer 
deals  in  his  own  town.  It  will,  in  such  a  case,  be  less  willingly 
dishonored;  and  it  will  be  in  the  hands  of  the  bank  most  dis- 
posed to  grant  financial  assistance. 

4.  A  dishonored  draft  brings  a  collection  to  a  critical  point 
where  thorough  investigation  is  needed  before  taking  further 
steps.  Investigation  may  lead  to  any  one  of  several  courses  of 
action:  (a)  An  extension  of  time  may  be  granted,  coupled,  if 
possible,  with  partial  payment  and,  in  some  cases,  by  the  ob- 
taining of  security.  A  series  of  notes  may  be  arranged  to  fall 
due  at  intervals.  "More  men,"  say  the  Studebaker  Brothers, 
''will  meet  promptly  three  small  payments  with  intervals  of 
time  between  than  the  aggregate  of  the  payments  at  the  average 
time.  The  dealer  usually  must  lay  by  money  in  advance  to 
meet  a  considerable  payment,  and  there  is  always  danger  that 


CREDIT  AND  COLLECTION  431 

he  will  use  this  fund  for  some  other  purpose,  either  to  make 
purchases  which  are  urged  upon  him,  or  to  satisfy  some  inter- 
vening creditor."  (b)  An  account  may  be  transferred  to  a 
collection  agency  if  the  credit  department  is  not  strong,  (c) 
The  last  stage  of  a  collection  lands  it  either  in  the  hands  of  an 
attorney,  or  in  the  list  of  bad  debts  charged  up  to  profit  and 
loss. 

5.  The  entrance  of  an  attorney  ends  amicable  relations.  All 
collection  efforts  short  of  suit  should,  therefore,  be  made  before 
an  account  is  placed  in  the  hands  of  an  attorney.  This  is  equiv- 
alent to  saying  that  the  use  of  an  attorney  in  prolonged  efforts 
at  collecton  is  a  mistake.  An  attorney  should  demand  settle- 
ment or  security;  if  neither  is  forthcoming,  suit  should  be  begun 
or  the  matter  finally  dropped. 

Credit  adjustment  bureaus.  —  When  an  insolvent  business 
is  to  be  liquidated  for  the  benefit  of  creditors,  under  the  pro- 
visions of  the  bankruptcy  act,  the  procedure  is,  after  the  filing 
of  a  petition,  to  appoint  a  receiver,  adjudge  the  debtor  a  bank- 
rupt, prepare  lists  of  the  creditors  and  of  the  debtor's  assets, 
elect  a  trustee,  collect  the  assets  and  convert  them  into  cash, 
establish  proof  of  the  debts,  declare  dividends,  and  grant  a 
certificate  of  discharge  to  the  debtor.  This  law  is  most  valuable. 
It  is  responsible  for  the  fact  that  the  former  wild  scramble  of 
creditors  to  get  ahead  of  each  other  in  filing  attachments  on 
debtors'  property  no  longer  takes  place.  It  is  responsible  also 
for  the  further  fact  that  transfers  of  property  intended  to  de- 
fraud creditors  or  favor  certain  of  them  at  the  expense  of  others 
are  largely  decreased.  Nevertheless,  the  operations  of  receivers 
in  taking  temporary  charge  of  bankrupt  estates,  and  of  trustees 
in  collecting  and  reducing  to  money  the  property  of  bankrupts, 
are  usually  performed  by  young  attorneys  who  are  ignorant  of 
business  methods,  or  by  business  men  whose  own  affairs  have 
not  prospered  sufficiently  to  fully  occupy  them,  and  hence  are 
frequently  marked  by  waste  and  delays  and  the  use  of  value- 
destroying  methods  of  liquidation.     It  is  a  general  opinion 


432     ADMIXISTRATIOX  OF  IXDUSTRIAL  EXTERPRISES 

among  credit  officers  that  bankruptcy  proceedings  result  in 
destroying  one-third  of  the  value  of  the  assets  involved,  and  in 
pa^nng  to  creditors  thii"ty-thi-ee  and  one-thii'd  cents  on  the 
dollar.  To  avoid  as  much  as  possible  of  these  losses  and  ex- 
penses, the  members  of  the  National  Credit  Men's  Association 
have  organized,  in  many  cities,  credit  adjustment  biu'eaus, 
which  imdertake  to  act  as  trustees  representing  creditors,  and 
to  Uquidate  property  in  an  expert  manner,  with  the  use  of  the 
most  approved  mercantile  methods.  As  a  general  rule,  these 
bureaus  are  able  to  distribute  to  crechtors  somewhat  more  than 
fifty  cents  on  the  dollar. 

Fraudulent  transfers.  —  It  is  well  for  crecHt  officers,  who  are 
called  upon  from  time  to  time  to  give  counsel  in  creditors' 
meetings,  and  even  for  travelling  salesmen  who  report  the 
business  news  of  their  territories,  to  possess  some  knowledge  of 
the  identifjTng  marks  of  fraudulent  transfers.  The  law  endeav- 
ors to  prevent  transfers  of  property  of  insolvent  persons,  or  of 
those  soon  to  become  insolvent,  as  a  means  of  defrauding  credi- 
tors. Transfers  which  are  prima  facie  fraudident  are  those  with- 
out consideration;  those  with  fictitious  consideration:  those  with 
grossly  inadequate  consideration,  as  on  imusual  credit  terms, 
or  on  crecUt  to  persons  not  financially  responsible;  those  on 
promise  of  support  (that  is  to  say,  board  and  lodging) ;  those 
in  pa\Tnent  of  a  debt  and  intended  as  a  preference  of  one  credi- 
tor over  another;  those  of  personal  property  but  with  retention 
of  possession;  and  those  made  to  members  of  the  family  or 
relatives. 

Further  than  this,  transfers  are  revocable  if  the  debtor's 
purpose  can  be  proved  to  be  fraudulent,  and  if  the  buyer  or  the 
tliird  party,  if  a  third  party  is  involved,  knew  of  this  piu"pose,  or 
had  reasonable  cause  to  know  it,  that  is  to  say,  was  chargeable 
with  notice.  Transactions  where  the  buyer  is  chargeable  with 
notice  are  such  as  take  place  under  circiunstances  which  would 
arouse  the  suspicion  of  a  reasonably  careful  person.  Among 
such  circiunstances  are.  goods  offered  for  inadequate  consid- 


CREDIT  AND  COLLECTION  433 

eration,  and  stocks  in  trade  offered  for  bulk  sale,  especially  if 
the  offer  is  secret  or  hasty  or  without  the  preparation  of  a 
proper  inventory. 

Credit  insurance.  —  Credit  insurance  is  better  described  by 
the  English  title,  ''Excess  bad  debt  insurance."  It  is  a  form  of 
insurance  offered  to  cover  unusual  losses  in  collection.  In  tak- 
ing out  a  pohcy  the  average  bad  debt  loss  of  the  insured  firm  is 
calculated  for  a  period  of  five  years  last  preceding.  This  per- 
centage is  set  down  as  the  own  or  initial  loss  and  is  not  covered 
by  the  insurance.  Losses  on  accounts  above  this  percentage 
which  result  from  the  insolvency  of  the  debtor  are  then  divided 
into  two  classes:  first,  those  involving  customers  who  had,  at 
the  time  the  credit  was  extended,  a  capital  and  first  or  second- 
grade  credit  rating  in  the  books  of  an  agreed  mercantile  agency 
and,  second,  losses  on  customers  not  having  such  ratings. 
Losses  on  rated  customers  are  covered  in  full  by  the  policy, 
except  that  the  sum  insured  on  any  one  account  is  not  to  exceed 
a  specified  sum.  Losses  on  customers  without  ratings  are 
partly  insured,  that  is  to  say,  the  company  purchasing  the 
policy  becomes  co-insurer  with  the  insurance  company  in 
respect  to  such  losses.  Some  of  the  advantages  claimed  for 
this  form  of  indemnity  are :  (a)  that  a  known  premium  replaces 
an  unknown  loss,  so  that  an  offsetting  charge  can  be  inserted 
in  price;  (6)  that  trial  balances  can  show  the  actual  value  of 
accounts  receivable;  (c)  that  credit  accounts  are  made  a  more 
acceptable  collateral  for  bank  loans;  {d)  that  the  maximum 
amount  insurable  for  any  individual  account  can  be  used  as 
the  credit  limit  with  customers  without  offending  them. 

BIBLIOGRAPHY 

Hagerty,  James  E. :   Mercantile  Credit,  N.  Y.,  1913, 

Kollman,  IM.  INI.,  and  Others:    Mercantile  Credit:    A  Series  of  Practical 

Lectures  Delivered  before  the  Y.  I\I.  C.  A.  of  Los  Angeles,  Cal., 

N.  Y.,  1914. 
Church,  F.  P.:   Modern  Credit  Methods,  Detroit,  1912. 


434     ADMINISTRATION  OF  INDUSTRIAL  ENTERPRISES 

Zimmerman,  T.  J.,  Editor:    Credits  and  Collections,  Chicago,  1904. 

Prendergast,  Wm.  A.:   Credit  and  Its  Uses,  N.  Y.,  1906. 

Lewis,  E.  St.  Elmo:   The  Credit  Man  and  His  Work,  Detroit,  1904. 

Skinner,  Edw.  INL:   Credits,  Chicago. 

White,  R.  S.:   Collections,  Chicago. 

Higinbotham,  H.  N.:    The  Making  of  a   Merchant,    2d   Ed.,  Chicago, 

1906.    The  Extension  of  Credit,  comprising  Chs.  IX  to  XII  inch 
The  Bulletin  of  The  National  Association  of  Credit  Men,  N.  Y. 


INDEX 


[the  references  are  to  pages] 


Accidents,  by  hours  of  the  day,  217. 
Accounting,     see     Cost     accounting; 
proprietorship  accounts  versus  cost 
accounts,  183-184. 
Administration,  improvement  in  the 
line  of  least  resistance,  2;    history 
of,   123-127;    pioneer  period,    123; 
inventors  and  engineers,  124;    cap- 
tains of  industry,  125-126;  modern 
administrator,   126-128;    American 
conditions,  128;  administrator  ver- 
sus capitalist,  129-130;    new  duties 
of,  141;    administrative   principles, 
143-148;  of  cost  accounts,  179-187; 
of  power,  121;   of  purchasing,  339- 
340;    of    selUng,   366-367;     of    ad- 
vertising, 384-385;    of  traffic,  397; 
of  credit,  418. 
Administrator,  American  types,  123- 
127;  American  conditions,  128-130; 
versus  capitalist,   129-130;   profes- 
sional feeling,  130-131. 
Advertising,  Ch.  XIX,  382-396;  waste 
in,    383-384;     administrative   rela- 
tions,    384-385;      functions,     385; 
agencies,      385-386 ;       preliminary 
studies,  386;    mediums,  387;    form 
letters,     387;      booklets,     387-388 
magazines,  388;   trade  papers,  388 
house  organs,  388-389 ;  catalog,  389 
newspapers,  389;    bill  boards,  389. 
posters,  389-390;  laws  of  attention, 
390-391;     interest,    391-393;     and 
memory,  394-395;    disagreeable  as- 
sociations avoided,  395-396. 
America,      conditions     favorable     to 
administrative    progress,     128-130; 
conditions    found    by    pioneers    of 
scientific   management,    131-132. 
Analogy,  6-7. 

Apprentices,   in   collective  bargaining 
contracts,  207-208. 


435 


Arbitration,   in   collective  labor  con« 

tracts,  209. 
Art  in  industry,  317-320, 
Attention,  problem  of,  in  office  work, 

326-329;    laws   of,   in   advertising, 

390-391. 
Automatic  sprinklers,  88-89. 

Bacon,  on  iterating  the  state  of  the 
question,  328. 

Banks,  metropolitan  versus  local,  42; 
specialized,  43. 

Barth,  Carl  G.,  machine  speeding, 
10-11;  on  the  Rowan  premium 
wage  plan,  271. 

Baths  in  factories,  296-297;  Walker 
and  Pratt  Co.,  296;  Sherwdn- 
Williams  Paint  Co.,  296;  National 
Lead  Co.,  297. 

Beauty  in  the  industrial  environ- 
ment, 317-320. 

Belting,  Taylor's  rules,  116-118. 

Betterment,  see  Welfare  work. 

Bibliography,  on  the  new  method  and 
the  new  spirit,  19-20;  launching, 
36;  location,  55-56;  layout,  74; 
buildings  and  equipment,  103-105; 
power,  121-122;  scientific  man- 
agement, 148-149;  on  general 
principles  of  administration,  149; 
works  manager,  168;  cost  account- 
ing, 187;  labor,  211;  fatigue,  225; 
newer  wage  systems,  289-290; 
welfare  '  work,  323 ;  office  depart- 
ments, 338;  purchasing  and  stores 
departments,  364;  selhng,  381; 
advertising.  396;  traffic  depart- 
ment, 415-416;  collections,  433- 
434. 
Boiler  design,  115. 

Bonuses,    departmental    in    Bourne- 
\'ille,  England,  252-253. 


436 


INDEX 


Book  of  rules,  for  office  departments, 
337. 

Bricklaying,  8-10. 

Building  contracts,  98-102. 

Buildings,  75-84;  functions,  75;  gen- 
eral executive  and  technical  expert, 
75-76;  unit  stresses,  77;  base- 
ment, 77;  widths  and  heights,  78- 
79;  length,  79-80;  stories,  80-81; 
types  of  construction,  81;  frame, 
81;  slow-burning,  82-83;  steel 
frame,  83;  floor  construction,  82- 
83;    reinforced  concrete,  84. 

Cadbury  Bros.  Ltd.,  Bourne\Tlle, 
England,  departmental  bonuses, 
252-253. 

Capital,  in  launching,  25;  local,  27- 
28;  application  of,  29-31;  fixed 
versus  circulating,  30-31;  geog- 
raphy of  interest  rates,  41-42; 
metropolitan  versus  local  bankers, 
42. 

Captains  of  industry,  125-127. 

Carnegie,  Andrew,  on  partnership,  22; 
profit  sharing  for  executives,  259- 
260. 

Celluloid  Co.  of  Newark,  N.  J.,  Cel- 
luloid Club,  314-315. 

Church,  A.  H.,  production  centres  in 
cost  accounting,   179. 

City  measurements,  49-51. 

Classified  lists  of  customers,  370-371. 

Clubs,  in  factories,  312-317;  diffi- 
culties, 313;  Eagle  and  Phoenix 
Club,  313-314;  Celluloid  Club, 
314-315;  acquaintance,  315;  rec- 
reation, 315;  warfare  with  drink 
and  vice,  316;  Coalbasin  Club, 
316;  development  of  initiative, 
316-317;  National  Cash  Register 
Co.,  317;    Senator  Proctor,  317. 

Coal,  qualities,  106-108;  specifica- 
tions in  buying,  108;  effects  of 
transportation,  108-109;  storage 
and  handling,  109-110. 

Collection,  use  of  attorney,  431; 
credit  adjustment  bureau,  431-432; 
fraudulent  transfers,  432-433 ;  credit 
insurance,  433.  Chapter  XXI, 
429-434;  stages  of,  429-431 ;  state- 
ment, 429;  follow-up,  429-430;  sight 
draft,  430;   partial  payments,  430. 


Collective  labor  contracts,  201-211. 

Colorado  Fuel  and  Iron  Co.,  hospi- 
tals, 300;  warfare  with  drink  and 
vice,  316. 

Competition,  predatory,  24. 

Conservation,  5. 

Continental  Motor  Co.  of  Detroit, 
meals,  302-303. 

Codperation,  principle  of,  144-145. 

Coordination,  principle  of,  144. 

Corporation,  organization,  26;  char- 
ter, 26-27;  distinguishing  capitalist 
from  administrator,  129-130. 

Cost  accounting,  Ch.  IX,  169-187; 
elements  of  cost,  169-170;  direct 
material  cost,  170-171;  direct 
labor  cost,  171-172;  expense  items, 
172-174;  systems  of  spreading, 
174-175;  expense  distributed  on 
materials,  175;  on  labor  time,  175- 
176;  on  labor  cost,  176;  on  prime 
cost,  176;  machine  rates,  176-177; 
production  centres,  177-179;  con- 
clusion on  spreading  systems,  179; 
tabulation  of  spreading  systems, 
180;  when  most  essential,  181; 
limits  of  elaboration,  181-182; 
order  system,  182-183;  relation 
to  proprietorship  accounting,  183- 
184;  uniform  cost  systems,  184- 
187. 

Credit,  Ch.  XXI,  417-434;  adminis- 
trative relations,  418;  general 
credit  policy,  418-419;  datings, 
419;  discounts,  419-421;  payment 
in  securities,  421;  credit  informa- 
tion, 421-423,  427-428;  credit 
limit,  422-423;  exemptions  (home- 
stead laws),  423-427;  property 
statement,  424-426;  credit  office 
system,  428-429;  credit  insurance, 
433;  information  furnished  by 
salesmen,  379. 

Credit  Men,  Natl  Asso.  of,  424- 
427. 

Customer's  contracts,  analysis  of, 
154-155. 

Cycle  of  trade,  and  time  for  launch- 
ing, 32-33. 

Datings,  419. 

Day  wages,  242-247. 

Deductive  reasoning,  6. 


INDEX 


437 


Demurrage,  412-413. 

Design,  theoretical  and  practical,  161- 
163;  designing  versus  manufac- 
turing, 162-163;  tested  by  use, 
163;    fear  of  rival  designs,  373. 

Discharge,  foreman  deprived  of  power 
of,  195;  general  lay-off  to  be 
avoided,  195;  protecting  dis- 
charged employee,   195. 

Discounts,  419-421. 

Distribution,  the  next  industrial 
problem,  5. 

Doctor,  company's;  National  Lead 
Co.,  297;  Sears,  Roebuck  and  Co., 
298-299. 

Dodge,  J.  M.,  on  distributive  justice, 
287. 

Draper  Co.,  Hopedale,  Mass.,  hous- 
ing, 306. 

Dressing  rooms  in  factories,  295—296. 

Duffy,  Frank,  quoted,  140. 

Eagle  and  Phoenix  Club,  Colum- 
bus, Ga.,  313-314. 

Earling,  P.  R.,  credit  limits,  422- 
423. 

Economic  geography,  45. 

Economizers,  115. 

Education,  in  factories,  308-312; 
elementary  schooling,  309;  con- 
tinuation schools,  309-310;  ap- 
prenticeship schools,  310-311;  mis- 
cellaneous intellectual  opportuni- 
ties, 311-312. 

Eliot,  Chas.  W.,  testimonials  of  little 
value,  193;  pleasure  in  exertion, 
214. 

Emerson,  Harrington,  on  waste,  3; 
twelve  principles  of  efficiency,  136; 
on  the  Halsey  premium  plan,  269; 
the  efficiency  wage  system,  281-286. 

Employment  officer,  189-190;  see 
Labor;  employment  rules,  192- 
195;  psychological  tests,  195-198; 
law  of  labor  contract,  198-201. 

Engineering  promoters,  29. 

Engineers  as  administrators,  124-125. 

England,  why  little  welfare  work, 
293-294. 

Equipment,  principle  of  coordination, 
60-62. 

Erasmus,  quoted,  142. 

Ethics,  18. 


Evans,     H.     A.,     materials     charged 

indirectly  in  cost  accounting,  171. 
Expense,  in  cost  accounts,  172-174. 

Factory  Buildings,  see  Buildings. 

Factory  layout,  see  Layout. 

Factory  sites,  51-52. 

Fatigue,  Ch.  XI,  212-225;  effort  and 
performance,  213;  recovery,  214; 
wholesome  fatigue,  214;  overstrain, 
215;  incomplete  recovery,  215- 
216;  signs  of  overstrain,  216-218; 
speed,  218-220;  paces  of  working, 
219-220;  stress,  220-221;  inter- 
mittency,  221-222;  administration 
of  fatigue,  222-224;  and  design  of 
equipment,  224;  soldiering,  224-225. 

Filene's  (Wm.)  Sons  Co.,  Boston, 
departmental  discharge,  195. 

Fire   hazard,    slow-burning    construc- 
tion,  82-83;     amount   of   loss,    84 
German      administration,      84-85 
rules  for  safe  construction,   85-88 
fire  escapes,  87;    automatic  sprink- 
lers,   88-89;     insurance    rates,    89- 
92;   rules  for  safe  operation,  92. 

Fisher,  Boyd,  on  the  Ford  wage 
plan,  255. 

Ford  Motor  Co.,  Detroit,  the  Ford 
wage  plan,  255;  elementary  school- 
ing, 309;  departmental  discharge, 
195. 

Foremen,  deprived  of  discharge  pow- 
er, 140,  195;  present  duties,  156- 
158;    functional,  158-161. 

Franklin,  Benj.,  circulating  capital, 
31;    maxims  of  thrift,  124. 

Freight  billing,  407-408. 

Freight  claims,  414-415. 

Freight  rates.  Fig.  2,  Distance  in 
terms  of  cost,  48.  American  rate 
structure,  397-404. 

Freight  routing,  406-407. 

Functional  foremanship,   158-161. 

Furnace,  requirements  of  combustion, 
110-112;  imperfect  versus  good 
furnace  design,  111-112;  mechani- 
cal stokers,  114-115;    draft,  115. 

Gantt,  H.  L.,  machine  speeding,  11; 
little  classification  of  workmen  by 
ordinary  employers,  246;  Gantt's 
wage  system,  278-281. 


438 


INDEX 


General  superintendent,  see  Works 
manager. 

Germany,  why  little  welfare  work 
there,  294. 

GHbreth,  F.  B.,  bricklaying,  8-10; 
definition  of  motion  study  and 
time  study,  151;  motion  study  in 
office  work,  337-338. 

Gillette  and  Dana,  units  of  measure- 
ment, 164. 

Going,  Chas.  B.,  expense  distribution 
in  cost  accounting,  174-175. 

Grieves,  W.  A.,  factory  restaurant, 
303-304. 

Griffin,  Chas.  L.,  elements  of  a  good 
design,  161-162. 

Ground  plans  of  factories,  67-74. 

Halsey,  F.  a.,  effect  of  cutting  piece 

rates,  251;    premium  wage  system, 

265-269. 
Hartness,   James,   circulating  capital, 

30-31;    fatigue  and  ingenuity,  217; 

fear  of  rival  designs  chiefly  based 

on  ignorance,  373. 
Heating,  temperature,  94;    humidity, 

94;   methods,  94-95. 
Hedging,  by  purchasing  officers,  353- 

355. 
Heinze,   H.    J.,   Co.,    Pittsburg,   Pa., 

art  in,  318-319. 
History,  American  industrial,  1. 
HoUingworth,     H.     L.,     strength     of 

various    advertising    appeals,    392; 

order  of  recollection,  395. 
Hospitals,     for     factories,     299-300; 

Colorado     Fuel     and     Iron     Co., 

300. 
House  organ,  as  advertising  medium, 

388-389. 
Housing,  304-308;   a  village  problem, 

306;      houses     to     rent,     306-307; 

houses  to  sell,   307-308;    boarding 

houses,  308. 
Human  factor,  18. 
Human    nature,    and   administration, 

147-148;    and  cost  accounts,  172. 
Hunt,  C.  W.,  Co.,  West  New  Brighton, 

N.  Y.,  truthful  advertising,  393. 
Hygiene  of  the  factory,  295-300. 

Illumination,  small  cost,  95-96;  es- 
sentials of  good,  96;    proper  inten- 


sities, 96;  distribution  and  diffusion, 
96;  glare,  97. 

Industry,  greatest  exponent  of  mod- 
ern action,  4. 

Information,  use  of  within  a  business, 
145-147. 

Inspection,  165-166. 

Inventors,  124-125. 

James,  William,  on  a  rational  sys- 
tem, 7-8. 

Jeffrey  Mfg.  Co.,  Columbus,  Ohio, 
meals,  303-304. 

Keely,  R.  R.,  production  centres  in 
cost  accounting,  178. 

Kimball,  D.  S.,  on  purchase  requisi- 
tions, 344-345. 

Kipling,  dishonest  purchasing,  355- 
356. 

Kodak  (Eastman)  Co.,  Rochester, 
N.  Y.,  beautification  work,  318. 

Labor,  problem  in  launching,  35; 
promotion,  147;  a  normal  incen- 
tive, 147;  as  a  cost,  172;  parts  of 
the  labor  problem,  188;  cost  of 
labor  turn-over,  188-189;  employ- 
ment officer,  189;  promotion,  190; 
transfer,  190;  sources  of  supply, 
191;  employment  agencies,  191- 
192;  casual  labor  regulations,  192; 
employment  rules,  192-195;  trans- 
fer system,  195;  psychology  of 
employment,  195-198;  law  of  the 
labor  contract,  198-201;  collective 
labor  contracts,  201-211;  fatigue, 
Ch.  XI,  212-225;  wage  systems, 
Chs.  XII  and  XIII,  226-290;  wel- 
fare work,  Ch.  XV,  291-323. 

Labor  contract,  law  of,  198-201. 

Labor  market,  inexperienced  em- 
ployers, 35-36;  geography  of,  40- 
41;  trade  schools,  41;  the  village 
supply,  41;  sources  of  supply,  191; 
employment  agencies,  191-192; 
measurement  of  wage  factors,  Ch. 
XII,  226-241. 

Landscape  gardening,  319-320. 

Launching,  Ch.  II,  21-36;  the  criti- 
cal faculty,  21-22;  persons  in,  22; 
study  of  the  market,  23-24;  scale 
of   operations,    24-25;     local    capi- 


INDEX 


439 


taJ,  27-28;    fixation  of  capital,  30- 
31;    voting  control,  31;    best  time 
for,  32-33;    factory  processes,   33; 
managerial  staff,  35;    buildings  and 
equipment,      33-34;      second-hand 
plant  not  desirable,  34;   labor  diffi- 
culties, 35. 
Law  of  the  labor  contract,  198-201. 
Layout,   57-74;    and  administration, 
57-58;    production  centres,  58-59; 
sequences,      59-61;       coordination, 
60-61;       direct     sequence     versus 
speciaHzed  shops,  63;    grouping  of 
shops,  63-64;    service  centres,  64- 
65;    segregation,   64-65;    yard  de- 
partments, 65-66;  enlargement,  66, 
70-74;    preserving  market  values, 
66;    ground  plans,  67-74. 
Lee,  G.  Stanley,  quoted,  19. 
Location,  Ch.  Ill,  37-56;  significance, 
37;    Wellington's  rule,  38;    materi- 
als, 38-39;   power,  40;   climate,  40; 
labor,    40-41;     trade    schools,    41; 
capital,  41;    relations  of  a  business 
to  similar  businesses,  42-44;    time 
of  transportation,  44;   freight  rates, 
45;   natural  protection,  45-46;    the 
local  market,  46;  available  popula- 
tion,  46-47;    estimate  of  tributary 
territory,    47;    Fig.   2,  Distance  in 
terms  of  cost,  48;  style  movement, 
48;  city  measurements,  49-51;    fac- 
tory sites,  51;    local  inducements, 
53-55. 
Lorimer,  Geo.  H.,  effect  of  book,  373. 
Ludlow     Mfg.     Associates,     Ludlow, 
Mass.,  housing,  306. 

Machine  rates,  in  cost  accounting, 
176-177. 

Machine  speeding,  10-12. 

Mallock,   W.  H.,   quoted,   146-147. 

Management,  a  new  factor  in  pro- 
duction, 3;  choice  of  staff  in 
launching,  35. 

Map  and  tack  system,  376-377. 

Market,  local,  46;  tributary  terri- 
tory, 47,  49. 

Masters,  Samuel,  revision  of  terri- 
tory of  travefi-ng  salesmen,  375-376. 

Meals,  at  factories,  300-304;  cost  of, 
301-303;  Continental  Motor  Co. 
of  Detroit,  302-303;    Jeffrey  Mfg. 


Co.  of  Columbus,  O.,  303-304; 
National  Biscuit  Co.,  304. 

Merrick,  D  wight  V.,  number  of 
observations  in  time  study,  234. 

Meumann,  E.,  memory  and  advertis- 
ing, 394-395. 

Miller,  Chas.,  on  salesmen's  conven- 
tions, 380. 

Mnemonic  system,  361-362. 

Mock,  Dr.  H.  E.,  on  physical  exami- 
nations at  Sears,  Roebuck  and  Co., 
29S-299. 

Monopoly,  consolidations,  2;  intol- 
erant of  competition,  24. 

Motion  study,  151;  bricklaying,  8- 
10;    of  office  work,  337-338. 

National  Biscuit  Co.,  meals,  304. 

National  Cash  Register  Co.,  Dayton, 
O.,  club  activities,  317;  landscape 
gardening,  318. 

National  Lead  Co.,  sanitary  rules. 
297. 

Nelson  (N.  O.)  Mfg.  Co.,  Leclaire, 
111.,  housing,  307-308;  continua- 
tion school  experiment,  309-310. 

Nurse,  visiting,  299. 

Office  departments,  Ch.  XVI,  324- 
338;  personnel,  324-325;  misuse 
of  clerical  staff,  325;  office  versus 
field,  326;  problem  of  attention, 
326-327;  noise,  327;  nature  of 
attention,  328;  significance  of  the 
task,  328-329;  arrangement  of, 
329-331;  equipment,  330-337; 
schedules,  337;  standard  instruc- 
tions, 337;  motion  study,  337. 

Office  schools,  list  of  firms  supporting, 
311. 

Orders,  control  of  operations  through, 
145;  WTitten,  152-154;  in  cost 
accounting,  182-183;  purchasing 
orders,  345-346;  size  of  purchasing 
order,  351. 

Owen,  Robert,  pioneer  in  welfare 
work,  291-292. 

Pace-maker,  eliminated  by  selection 

of  first-class  men,  229-231. 
Packing  and  freight  rates,  409-411. 
Paragraph  dictation,  333. 
Parkhurst,    F.   A.,   need   of  a   stores 


440 


INDEX 


department,  359;    schedule  of  shop 
orders,  363. 

Partnership,  Andrew  Carnegie  on,  22; 
legal  relations  of,  25-26. 

Pelzer  Mfg.  Co.,  Pelzer.  S.  C,  hous- 
ing, 306;  elementary  schooling, 
309. 

Piece  rates,  247-252. 

Pierce,  H.  C,  on  promptness  in  a 
purchasing  department,  352. 

Population,  methods  of  estimating, 
46. 

Power,  problems  of,  106;  coal,  106- 
110;  requirements  of  combustion, 
110-112;  furnace  design,  111-112; 
firing  systems,  112-113;  fireman's 
rules,  113-114;  mechanical  stokers, 
114-115;  draft,  115;  boiler  de- 
sign, 115;  economizers,  115;  shaft- 
ing losses,  116;  belting  rules,  116- 
118;  electric  drive,  llS-119;  to 
buy  or  to  produce,  119-120;  and 
mill  design,  120-121;  general  ad- 
ministration, 121. 

Price,  guarantee  of,  371;  and  quan- 
tity, 369-370;  control  of  price  of 
resale,  372. 

Proctor  and  Gamble  Co.,  Ivorydale, 
O.,  profit  sharing  plan,  254. 

Production  centre,  layout  of,  58-59; 
in  cost  accounting,  177-179;  R. 
R.  Keely  on,  178;  A.  H.  Church 
on,  179. 

Professional  pride,  17-18. 

Profit  sharing,  253;  plans  similar  to, 
254-255;  advantages,  255-256;  dis- 
advantages, 256-258;  for  salaried 
employees,  258-260. 

Promoter,  types  of,  28-29;  syndicate 
managers,  29;  engineering  pro- 
moters, 29. 

Promotion,  147,  190. 

Property  statement,  in  securing  credit, 
424-426. 

Purchasing,  nearness  to  materials, 
38-39;  purchasing  department,  Ch. 
XVII,  339-358;  adniinistrative  re- 
lations, 339-342;  functions,  342; 
limits  of  authority  342-343;  equip- 
ment, 343-344;  requisitions,  344- 
345;  the  order,  345-346;  specifi- 
cations. 346-351 ;  size  of  order,  351 ; 
standardization  of  stores,  351-352; 


promptness,  352;   schedule  of  deliv- 
eries,  352-353;    hedging,   353-355; 
honesty,  355-358. 
Purchasing    officer,     see    Purchasing 
department. 

Quantity  prices,  369-370. 

Railway  rates,  see  Freight  rates; 
see  also  Traffic  department. 

Records  in  office  work,  unit  system, 
333-336. 

Redfield,  W.  C,  points  of  the  pres- 
ent movement,  136-137. 

Reports,  145. 

Research  in  industry,  13-14. 

Rest  rooms,  in  factories.  296. 

Restaurant,  at  the  factory.  300-304. 

Retail  district,  real  estate  analvsis, 
52-53. 

Routing,  simple  sequence,  59 ;  parallel 
sequence,  59;  elaborative  sequence, 
60;    assemblj^  sequence,  61. 

Rowan,  James,  premium  wage  plan, 
269-272. 

Rufus  F.  Dawes  Hotel  of  Chicago, 
cost  of  meals,  302. 

Ruskin,  John,  art  and  industry,  319. 

Schedule,  155-156;  work  and  rest 
schedules,  221-222;  little  known 
as  to  proper  rate  of  working,  231- 
233;  for  office  work,  337;  schedule 
of  shop  orders  protected  by  stores 
and  stock,  363-364. 

Schools,  in  factories,  308-312. 

Science,  greatest  exponent  in  modern 
thought,  4;  applications  to  indus- 
try, 4-5;  a  labor-sa\'ing  contriv- 
ance, 7. 

Scientific  management,  the  scientific 
method,  8-12;  a  new  point  of  ^'iew, 
15-16;  early  history,  131;  condi- 
tions pioneers  found,  131-132; 
conclusions  confirmed,  132;  creed 
of,  133-137;  influence  exerted, 
137-138;    objections  to,  138-142. 

Scientific  method,  definition  and  steps 
of,  5;  illustration,  bricklaying,  8- 
10;  in  industry  misunderstood,  12; 
difficult  to  apply  in  industry.  12-13; 
mental  attitude  favorable  to,  16- 
17. 


INDEX 


441 


Scott,    W.    D.,    analysis    to    perceive 

parts,  5-6. 
Sears,    Roebuck   and   Co.,   results   of 

physical   examinations,   298-299. 
Selling,    Ch.  XVIII,    365-381;    func- 
tions, 366;  administrative  relations, 
366-367;   contract  of  sale,  367-369; 
price  and  quantity,  369-370;    price 
and  classified  lists,  370-371;    guar- 
antee   of    prices,    371;     control    of 
price  of  resale,  372;    agencies,  372; 
travelling  salesmen,  373-380;    mis- 
cellaneous methods  of  distribution, 
380-381. 
Service  departments  in  cost  account- 
ing, 173. 
Service  industries,   cost  of  municipal 
ser\aces,      49-50;       developed      by 
regional  specialization,  43. 
Sherwin-Williams   Paint    Co.,    baths, 

296. 
Shop  orders,  protected  by  stores  and 

stock  departments,  363-364. 
Sliding  scale,  260-264. 
Soldiering,  time   study  reveals,    237- 
238;    a  disagreeable  pace,  219-220; 
cause  and  cure,  224-225. 
Specification  in  buying,  346-351. 
Speed  of  working,  see  Schedule. 
Spirit,  the  new,  in  industry,  14-19. 
Standardization,   151-152;    of  stores 

351-352. 
Stores  department,   Ch.  XVII,   358- 
364;    need  of,  358-360;    functions, 
360;      location,     360-361;      classi- 
fication,   361;     mnemonic    system, 
361-362;     schedule    of    purchases, 
362-363;    schedule  of  shop  orders 
363-364. 
Strikes,  in  collective  labor  contracts, 

209-210. 
Studebaker    Bros.,    partial    payment 

plan,  430-431. 
Syndicate  managers,  29. 

Tabor,  Leroy,  depriving  foremen  of 

power  to  discharge,   140. 
Talent,  laws  of  distribution,  194. 
Taussig,    F.    W.,    profit   sharing   and 

trade  unionism,  257-258. 
Taylor,    F.    W.,    machine    speeding, 

10-12;     scientific    management    a 

point  of  view,  15-16;   belting  rules, 


1 16-118;  standardization,  152;  pos- 
sible hours  under  load,  221;  on 
the  day-wage  system,  245;  short 
tasks,  257;  on  premium  systems 
without  a  definite  task,  273;  on 
the  differential  piece-rate  system, 
273-378;  on  merit  of  Mr.  Gantt's 
system,  277. 
Time  study,  opposition  to,  238-241; 
general  discussion  of,  233-241; 
composition  of  minimum  time,  234- 
237;  time  study  observation  sheet, 
235;  allowance,  237;  time  study 
and  soldiering,  237-238;  permanent 
records  of,  238. 
Tolerance  dimensions,  163-164. 
Tool  room,    166;    machine  stripping, 

166-167;    tool  accounting,   167. 
Trade   mark,  in  the  name   of   a  spe- 
cialized town,  43-44. 
Trade    papers,    as     advertising    me- 
diums, 388. 
Traffic  department,  Ch.  XX,  397-416; 
administrative        relations,        397; 
freight  rates,  397-404;    changes  of 
freight     rates,      404-406;       freight 
routing,    406-407;    freight    billing, 
407-408;  size  of  shipment,  408-409; 
packing,  409-411;     trucking,    411- 
412;    fast  freight  serA-ice,    412;  de- 
murrage, 412-413;    rebilling,  recon- 
signment,  and  stoppage  in  transitu, 
413-414;    freight  claims,   414-415; 
improvement    of    railway    service. 
415. 

Transportation,  see  Traffic;  economic 
geography,  45;  freight  and  loca- 
tion for  establishment,  45;  natural 
protection,  45-46;  Fig.  2,  Distance 
in  terms  of  cost,  48. 

Travelling  salesmen,  373-380;  ad- 
ministration, 374;  assignment  of 
territory,  374-375;  revision  of 
territory,  375;  routing  control, 
376-377;  records  and  reports, 
378-379;  cooperation  ^^-ith  the 
salesman,  379-380. 

Trucking,  principles  of,  62;  economics 
of,  411-412. 

Trustee,  use  of,  in  launching,  28. 

Uxioxs,  reeogniiion  of,  in  labor  con- 
tracts, 203. 


4-42 


IXDEX 


United  Shoe  Machinery-  Co.,  Fig.  16, 
ground  plan,  70. 

Vachee,  Col.,  Napoleon's  map  and 

tack  system.  376-377. 
Ventilation,  effect  on  labor  force,  93; 

good  air  defined,  93;    temperature, 

94;    humiditv,    94;     methods,    94- 

95. 
Vermont   Marble   Co.,    Proctor,    Vt., 

Club,  317. 

Wages,  in  collective  labor  contracts, 
205-207;  factors  in  wage  problem, 
226-227;  application  of  science  to, 
227-229;  standardization  of  con- 
ditions, 229;  standardization  of 
the  laborer,  229;  first-class-man 
standard,  229-231;  pace-maker 
eliminated,  229-231;  standardized 
rate  of  performance,  231;  time 
study,  233-241;  older  wage  svs- 
tems,  Ch.  XIII,  242-264;  d'ay 
rate,  242-247;  piece  rates,  247- 
252;  departmental  bonuses,  252- 
253;  profit  sharing,  253-25S;  Car- 
negie's plan,  259-260;  The  Beth- 
lehem Company,  260;  the  sliding 
scale,  260-264;  newer  wage  sys- 
tems, Ch.  XIV,  265-290:  Halsey 
premium  plan,  265-269;  Rowan 
premium  plan,  269-272;  Taylor 
differential  piece-rate  plan,  273- 
278;  the  Gantt  wage  sj'stem.  278- 
281;  the  Emerson  wage  system, 
281-286;  labor  response  to  varia- 
tion of  wages,  2S6-2S7;  distribu- 
tive   justice,    2S7-2SS;     wages    of 


contentment,  288-289;  welfare 
work,  Ch.  XV.  291-323. 

Waltham  Watch  Co..  Waltham,  Masg.. 
dormitories,  30S. 

Waste,  present  practice,  3. 

Welfare  work,  Ch.  XV,  291-323; 
origins,  291;  and  the  modem 
executive,  292-293;  a  phase  of 
general  progress,  293;  geography  of, 
293-294;  what  it  comprises,  294- 
295;  factory  hygiene  and  pre- 
ventive medicine,  295;  dressing 
rooms,  295-296;  rest  rooms.  296; 
baths,  296-297;  physical  examina- 
tions, 297-299;  Aisiting  nurse,  299; 
hospital  facilities,  299-300;  mid- 
day meal,  300-301;  housing,  304- 
30S;  education,  30S-312;  clubs, 
312-317;  beauty  in  the  industrial 
en\-ironment,  317-320;  pohcies, 
320-321;  difficulties,  321;  con- 
clusion, 322. 

Wellington,  A.  M.,  rule  on  location, 
3S. 

Wheeler,  Lieut. -Col.,  on  machine 
stripping,  166-167. 

Works  manager.  150-168;  duties, 
150;  state  of  the  art,  150;  motion 
study,  151;  standardization.  151- 
152;  written  orders,  152-154; 
schedules,  155-1-56;  foremanizing 
methods,  156-161;  design,  161- 
163;  standards  of  accuracy,  163; 
tolerance  dimensions,  163;  meas- 
urement of  output,  164^165;  in- 
spection, 165-166;  tool  room, 
166-16S. 

Wundt,  classification  of  tempera- 
ments, 196-197. 


THE  -PLIMPTON  -PRESS 
KORWOOD  -MASS-US- A 


